Banks have warned the Chancellor Rachel Reeves to abandon plans to cut the tax-free Isa savings allowance. Reeves is considering lowering the annual tax-free allowance for cash Isas in a bid to encourage more people to invest in shares.
However, her plans, which would affect 18 million users, have gone down poorly with key figures in the city who have lobbied the Chancellor to “leave Isas alone”. Isas allow people to save up to £20,000 a year and earn tax-free interest or gains on your investments, meaning you get to keep more of your money. Stuart Haire, the Skipton Building Society chief executive, told The Telegraph that the Chancellor should “leave cash Isas alone”.
Emma Reynolds, the economic secretary to the Treasury met with leaders of the UK’s largest banks this week, including HSCBC, Natwest and Lloyds.
It is understood that Ms Reynolds was warned firmly that the proposed changes would lead to higher bills for people, including pensioners and do little to boost national growth.
Mr Haire added: “We agree with the Government that people in the UK should increase, if they have the wherewithal and the risk appetite, the amount of money they have got in equities.
“However, changing the cash Isa limit will not do that, so therefore it’s the wrong tool to achieve the policy outcome.”
Andrew Griffith, the shadow business secretary, has blasted the plans as a means of boosting treasury income as expenditure becomes tight.
He said: Rachel Reeves must have caught some early sunstroke if she believes those who work hard and save should be paying even more tax.
“Cutting the long standing, tax free cash ISA is a mad, penny-pinching grab by the Treasury.
Ms Reynolds has further been warned that the changes would damage building societies, due to rules which require them to fund mortgage lending through customer deposits, 40% of which come from Isas.
The economic secretary addressed concerns at the Building Society Association’s annual conference in Birmingham last week, where she recognised there had been “a tremendous amount of speculation about” Isa changes.
She said “I absolutely appreciate that people need a financial buffer for a rainy day, and we all do. Many of us have cash Isas and cash savings.
“And there’s a reason for that. You could lose your job – I lost my job in 2019. We understand that cash savings play a very important role.”
A Treasury spokesman said: “We want to support people to save and absolutely recognise the important role that cash savings play in building a buffer for a rainy day.
“We also want to ensure that savers are getting the best returns possible, while boosting the economy to create jobs right across the UK. No decisions have been made.”
