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Rachel Reeves biting warning cash isa Limits will cost the treasury billions and disincentivize people to start investment,
The Building Societies Association (BSA) says the fallout from the cut in Cash ISA rates will result in up to 60,000 fewer mortgages being offered in the property market, as well as hampering the government’s target of 1.5 million new homes over the term of Parliament.
As a result, the BSA estimates it could cost the Exchequer £2.5 billion through harm to economic growth and reduced tax revenues.
During the summer, societies were formed nationwide and including Skipton. Wrote a letter to the Chancellor requesting Leaving the cash ISA untouched.
Building societies are among those that offer cash ISA products and use those deposits to support their ability to fund residential mortgages. BSA research says cutting the amount saved in them could reduce building society mortgage supply by 5 per cent. They are particularly active in the first-time buyer market.
Dame Meg Hillier, chair of the Treasury select committee, said it was “not the right time to cut cash Isa limits”.
Currently, the rules allow each individual to save £20,000 per tax year in an ISA within the limits available, which include Lifetime ISAs as well as cash and investment versions. Speculation has suggested Ms Reeves could halve how much can be saved as cash, with the remaining allowance then diverted towards investment.
Chancellor earlier this year Highlighting huge differences in potential returns £2,000 of savings or investments could yield earnings, and although eyebrows were raised over the rates used in each case, the essential point remains valid: over the long run, investing yields better results than saving.
Meanwhile, results from a new survey show that more people would potentially be willing to pay Tax on cash savings Before starting investment.
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Government It’s clear they want to create a culture of investment across the UK, which has a smaller number of retail investors – the general public – compared to other countries like Germany, Sweden or the US.
But the Chancellor’s reported plan is to effectively get people into stocks and funds by cutting their tax-free savings allowance has been widely criticizedMost industry experts agree that this is completely unlikely to have the desired effect.
That view has now been supported by new research which shows that more people (26 per cent) would prefer to have extra savings Wealth Beyond the Cash ISA limit in a simple, non-ISA savings account, invest it in a tax-free Stocks and Shares ISA (20 per cent).
While an additional one in ten (10 percent) said they would spend the money instead, nearly two in ten (18 percent) said they would not make any specific plans for the extra cash – in both cases potentially reducing the financial flexibility of individuals or families.
The survey was conducted by Censuswide on behalf of personal finance comparison site finderWith 2,000 adult respondents.
Interestingly, 15 per cent said they would invest the money outside an ISA – perhaps reflecting that some have already maxed out their allowance or are unaware of the process of investing within an ISA – while nine per cent said they did not know what cash ISAs are.
Finally, 16 percent suggested they would put the money in premium bonds – which offer rewards once a month but pay no interest, meaning they risk losing the purchase value of most of their money over time due to the effects of inflation, which is currently running at 3.8 percent.
George Sweeney, investment expert at Finder, said: “There was a lot of reaction to this, but trying to encourage Britons to invest more and get better returns is an admirable end point with which I agree. However, I don’t think cutting the cash ISA allowance paves the way for this outcome.
“A big reason for this is that many people don’t feel confident enough about the potential of investing. We found that only 1 in 5 Britons (20 per cent) currently invest in the stock market. When asked why this was the case, the main reason given was that a quarter (25 per cent) think it is too risky.
“Unfortunately, tinkering with the ISA allowance is not going to lead to the necessary cultural and behavioral change that will lead to more Britons investing. Instead, we need better financial education for adults and younger generations about the potential long-term benefits of investing.
“The potential risks of tampering with ISA allowances and rules outweigh the potential for Reeves to achieve the desired outcome from this change.”