Millions of savers will be nervously awaiting her Spring Statement on March 26, when we’ll find out what she’s going to do with the hugely popular tax-free ISA savings allowance.
Will she limit the amount we can pay into Cash Isas from £20,000 to £10,000? Or even go as low as £5,000?
Or will she go slash the overall £20k ISA allowance, hitting those who invest in Stocks and Shares ISAs too?
As yet we don’t know.
ISAs have been a massive success they were launched in 1999, ironically by a former Labour chancellor, Gordon Brown.
Last year marked their 25th birthday, when figures showed Britons had a staggering £750billion tucked away in them.
That included around £456billion invested in Stocks and Shares ISAs and £285billion in cash ISAs. A further £9billion is held in children’s Junior Isas. All that money escapes income tax, dividend tax and capital gains tax for life.
More than 22million Britons hold ISAs in total. The average holds £30,000, while the over-65s have £58,787.
Savers love them, but the Treasury doesn’t. ISA tax breaks cost it almost £7billion a year in lost tax revenues.
That figures rises every year. Now it’s desperate to claw some of that back.
Greedy City investment fund managers are also eyeing up our ISAs.
They want Reeves to slash Cash ISA tax breaks to push savers into taking a gamble on Stocks and Shares ISAs. She’s had a meeting with them but so far kept the details secret.
They argue this could savers better returns and boost growth by channelling funds into British businesses.
Carol Knight, chief executive at The Investing and Saving Alliance, warned this would penalise savers. “Especially for those new to saving and those in later life.”
Jason Hollands, managing director of advisers Evelyn Partners, said attacking the Cash ISA could blow another hole in Reeves’s reputation. “It would be like igniting a stick of dynamite under the already inflammable tinderbox of public opinion.”
Hollands said she might still cut maximum Cash ISA contribution from £20,000 to, say, £10,000 a year. “That wouldn’t hit most savers, but might drive more money into shares.”
Reeves could blow up other parts of the ISA allowance. She could reserve Stocks and Shares ISA tax breaks for those only investing in UK shares only.
Or set a limit on the sums can build up in ISAs over their lifetime.
Newly appointed Labour Pensions Minister Torsten Bell has called for a £100,000 cap, which he says will save the Treasury more than £1billion a year.
Reeves also called for a lifetime limit in a 2016 newspaper article, although she put it higher at £500,000.
There’s another way Labour could stop ISAs from benefiting the better off – by slashing the annual £20,000 allowance in half.
It’s simple enough. Also, only 7% of us can afford to invest £20k a year and obviously, they’re all pretty wealthy in the first place.
In fact, Reeves made a start in the autumn Budget, freezing the £20,000 limit to 2030, so its real value will be eroded by inflation anyway.
With money tight, she could go even further.
Another move would be to axe the Lifetime ISA, or LISA, which gives younger savers a bonus of up to £1,000 a year.
So far, attacking the Cash ISA seems the most likely move. Which ironically would be the most hated move of all. This stick of dynamite could blow up in Reeves’s face. Wouldn’t be the first time.
