ISA contribution limits. Rachel Reeves has given further clues about possible ISA changes.
Our February Bulletin looked at cash ISAs and the rumours emerging that the Chancellor was planning to cut the cash ISA subscription limit. In March, the Spring Statement said:
“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.”
Since then, there have been various reports of meetings between investment management groups and the Treasury, with the former calling for a cash ISA subscription limit of £4,000. In March, £4.2bn flowed into cash ISAs as the tax year closed.
On 10 May, the Financial Times said that the Treasury was expected to launch an ISA review “within weeks”, although the paper also suggested it could be launched as part of Rachel Reeves’ Mansion House speech, due in July.
On Monday 19 May, Rachel Reeves gave an interview to BBC Newscast in which she was questioned about the future of ISAs (from 33.38 onwards). She was asked whether the ISA subscription limit would be cut and initially replied by saying, “Very few people will be able to save £20,000.” That view is not supported by the most recent (2022/23) ISA stats, which showed 1.772m maximum subscriptions – about 17% of all subscriptions by number and nearly half of all subscriptions by value.
Rachel Reeves went on to say that she was “certainly not going to reduce” the ISA limit, a statement that some media has reported as meaning the £20,000 cash ISA will stay. However, that ignores her next statement that “…but I do want people to get better returns on their savings…and at the moment a lot of money is put into cash or bonds when it could be invested in equities…and earn a better return.”
That equities-are-better line mirrors the Spring Statement, but muddies the waters with the reference to fixed interest, which currently fall within the stocks and shares ISA category. Rachel Reeves made no reference to UK investment requirements, which for the moment seems to be a focus only for pension fund monies.
Comment
The reference to fixed interest suggests the Treasury may be looking at how to avoid circumvention of any cash ISA limit by using quasi-cash type funds, e.g. those holding ultra-short gilts or similar securities.
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