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Cash ISA threat still remains: with ISA reforms on the horizon, will savers lose out?
Cash ISAs are safe for now from any cuts, but the push for investing in stocks and shares is almost certainly coming and could be announced in the Autumn Budget, says Kalpana Fitzpatrick
While the cut to cash ISAs was widely rumoured to be cut to just £4,000 in the Spring Statement, the chancellor’s focus was more immediate savings to help her achieve a £9.9 billion headroom by 2029/30.
In what appeared to be a wave of desperate measures with a number of welfare cuts, Reeves used the Spring Statement to tighten the government’s purse strings to tackle a flattening economy after the Office for Budget Responsibility (OBR) halved its forecast for growth this year, down to 1% from the 2% forecast in October's Budget.
It’s a slightly more positive picture in the years ahead; in 2026, OBR forecasts are higher at 1.9%, up from 1.8% forecast in October, in 2027 it’s 1.8%, up from 1.5%, 2028 is 1.7%, up from 1.5% in October and 2029 is 1.8%, up from 1.6% in October.
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While Reeves has counted the pennies as she reined in on welfare benefits, laid out plans for tackling tax evasion and imposed higher charges for those who miss the self-assessment tax return deadline, experts have argued she has little room for manoeuvre. With months to go to the big day – the Autumn Budget – Reeves may therefore consider further tax rises. After all, she is on a path to austerity and it will take whatever it takes.
But for now, this Spring Statement was more about cleaning the mess and setting the economy up for growth. It was certainly not an ‘emergency budget’ that Mel Stride, shadow chancellor, labelled it as and it was definitely not the right time to bring in sweeping changes to cash ISA rules.
ISA changes
While Reeves did not breathe a word of tax rises, ISAs were mentioned in the Spring Statement documents.
Cash hoarders are safe with cash ISAs for now and can enjoy the same £20,000 tax shield as those who put their money into stock and shares, instead of just £4,000 as rumoured.
But, change is coming. “The government is looking at options for reforms to Individual Savings Accounts that get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission,” the documents stated.
“Alongside this, the government is working closely with the Financial Conduct Authority (FCA) to deliver a system of targeted support to give people the confidence to invest.”
While this statement doesn’t say a lot, it is clear that the intentions are to get people focused on investing and I truly believe giving people support is important to help them invest confidently.
It is the knowledge gap that is the ultimate problem. Most people hold cash because they do not have the confidence to invest, don’t know where to start as it is deemed complex, and they believe they need expertise and a lot of money to get started.
If the government can fill the void – getting people to understand and build their confidence – then sure, there is hope that cash hoarders will start shifting their money to investments. And if they do, it’s a win-win for both the government and individual savers.
As well as building confidence, there is a task for the government to raise awareness of stocks and shares ISAs.
According to the Investment Association, one in five (17%) Brits have “never heard” of a stocks and shares ISA and 25% of those who have, do not know anything about it. Around 22% said they preferred cash ISAs as they were easier to understand.
Research from Just Group shows 63% of Gen X have a cash savings account holding over £34,000. Having thousands in a cash account is not generational, FCA research has shown that most people have over £10,000 in investable assets sitting in bank accounts earning low interest.
Further research from AJ Bell shows if the government does at some point go ahead with capping cash ISAs to £4,000, then 51% of those surveyed would simply stick the money in a taxable savings account.
If Reeves does want to shake-up the ISA world, it must follow a significant campaign with education around investing. Otherwise, Labour will achieve little in making both businesses and individuals financially stronger – something essential in any thriving economy.
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