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A group of senior MPs has warned the government not to do so Reduction in Cash Isa Allowance Chancellor Rachel Reeves is understood to be considering the measure in the Budget.
In an apparent intervention, the cross-party Treasury Committee has clearly told the government That it should not cut the £20,000 tax-free allowance given to each saver.
The Chancellor is reportedly considering reducing this figure significantly to £10,000 to encourage investment in shares of British companies.
But it “will not bring the change she wants”, Dame Meg Hillier, chair of the Treasury committee, has warned, sharing a new report from the group of MPs that is unlikely to encourage savers. Switch to investing.
The report said the government’s focus should be on financial literacy and enabling people to make informed decisions about their savings.
One there is one A tax-efficient pot in which cash or investments can be held. Since 2017, holders can add up to £20,000 per year to their account or accounts (if multiple are combined) and the interest, capital gains or dividend income generated from them will not be taxed.
cut back cash isa The committee warned that the allowance would also have a negative impact on mortgage savers, as it would hamper building societies’ access to retail savings – a “vital” funding source for their mortgage lending.
The measure would undermine the “stability and competitiveness” of these lenders, which would have knock-on effects on both consumers and the broader financial ecosystem.
Dame Meg Hillier, Chair of the Treasury Select Committee, said: “The Committee stands firmly behind the Chancellor’s ambition to create a culture in the UK where savers are investing their money wisely and achieving better returns through well-informed financial decisions. But we are far from that point.
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“This is not the right time to cut Cash Isa limits. Instead, the Treasury should focus on ensuring people are equipped with the information and confidence they need to make informed investment decisions.
“Without this, I fear the Chancellor’s efforts to change the UK’s investment culture will not bring about the change she wants, but will instead harm savers and mortgage borrowers.”
Tom Selby, director of public policy at AJ Bell, comments: “While the Chancellor has the right policy aim to boost retail investment in the UK, cutting the cash Isa allowance would be a clumsy and ineffective way to do this.
“All of this will remove the barriers that currently exist between cash Isa and stocks and shares Isa, when behavioral research tells us that removing these barriers and simplifying the landscape will be the most effective way of helping more people invest for their financial future.”
Responding to the report, Ms Reeves said: “My understanding is that the report says changes to ISAs should not be made in isolation of other policies. I will set out any tax changes in the Budget in November. And of course we need to get that balance right.
“We want to help people save for a mortgage, but we also want people to get a better return on the money they are investing. Putting money into an Isa or indeed a pension means you are sacrificing spending today to save for the future.
“At the moment, often the returns on savings and returns on pensions are lower than in comparable countries around the world, and I want to make sure that when people put something aside for the future, they get a good return on those savings.”