Rachel Reeves has backed down on plans to reduce the tax-free Isa savings allowance, as she bowed to mounting pressure from the City.
The Chancellor has confirmed that she will not change the £20,000 annual limit on Isas, in a move that will benefit millions of savers.
The reversal comes just days after The Telegraph revealed banks’ opposition to the proposed overhaul, which included plans to slash the £20,000 allowance to as low as £4,000 in an attempt to boost the stock market and kickstart growth.
Speaking to the BBC on Monday, Ms Reeves said: “I’m not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.
“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people.
“But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”
Cash Isas, which are held by 18m people, allow households to save without having to pay income tax on the interest.
But in February, Emma Reynolds, the Economic Secretary to the Treasury, told a Lords committee that the savings product was draining investment from the London Stock Exchange.
“Why have we got hundreds of billions of pounds in cash Isas? We have failed to drive an investment culture,” she said.
Shortly after, the Treasury said that wholesale reform of Isas would come “under review” before the Autumn Budget later this year.
The Chancellor also told MPs that overhauling Isas “would be worthwhile”.
While insisting that the £20,000 limit will remain in place, Ms Reeves suggested she could still alter Isa rules to boost investment in stocks and shares.
Such reforms have already been supported by investment giants such as Fidelity International.
The Chancellor said on Monday: “One of the reasons why we’re looking at advice and guidance that financial firms can give to their customers is to make sure that people are making informed decisions about how to invest their money, whether that’s their pension savings or their ISA savings.”
However, the climbdown comes after banking executives last week told Emma Reynolds that the public prefers saving cash to investing in riskier shares.
They said households would simply switch to traditional savings accounts if the £20,000 Isa allowance was lowered.
Ms Reynolds met with leaders from HSBC, NatWest and Lloyds last Thursday, along with the Building Societies Association.
During that meeting, she was warned that the changes would impose higher tax bills on pensioners and do little to boost growth.
Add Comment