Last week, the Chancellor confirmed that reforms will be going ahead to encourage Britons to invest their money.
She hinted that any changes to the current rules, which allow savers to put up to £20,000 into either a Cash ISA or a Stocks and Shares ISA, would be intended to increase the proportion of people investing in products that show a greater return over time than cash.
Professor Stephen Barber of global affairs at the University of East London told The i Paper: “To reform the cash ISA right now is highly questionable given the implication that otherwise risk-averse savers should be investing in a stock market set into freefall by the same Trump kamikaze economic policies that have wrecked the Chancellor’s careful budgeting.”
The FTSE 100 fell by as much as 6.3 per cent on Monday, ending the day closing down by 4.38 per cent.
The S&P fell by 4 per cent in New York on Monday and is on track to plunge into a bear market after falling by 20 per cent from its record high set in December.
Dr Michael Harrison, senior lecturer in economics at the University of East London, said: “The Chancellor is currently considering lowering the cash ISA allowance in order to either get money spent in the shops, or to encourage more people to channel funds into the stock market to support UK-listed companies.
“Given the unpredictable policy space in the US, effects are felt across multiple stock indexes, with the UK’s FTSE 100 at its lowest point in a year yesterday.
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One proposal popular with City bosses is for the annual cash allowances to be cut from £20,000 to just £4,000 – just a fifth of what it is currently.
ISA limits were originally set at £7,000 when the savings accounts were introduced by Gordon Brown, the former Chancellor, in 1999. If the limit had increased with inflation, it would now be £13,165.
‘Capping cash entitlements would make the system more complicated’
Tom Selby, director of public policy at AJ Bell, said any reforms to ISAs should be focused on the long-term, ensuring any unnecessary barriers to investing are removed and people have the help and support they need to invest.
“That said, we think the focus here needs to be on simplifying ISAs and helping people better understand the long-term benefits of investing, rather than scaling back choice.
Research by AJ Bell also suggested simply restricting cash ISAs would be “pretty ineffective” in encouraging more people to invest as many would simply look for cash options outside ISAs.
‘We need to be mindful of added complexity’
Camilla Esmund, senior manager at interactive investor, said a core focus of this conversation needs to be the importance of ISA simplification.
“The proliferation of ISA options may inadvertently discourage potential investors. By simplifying the choices, we can make ISAs more approachable and user-friendly for all.
Although Reeves is yet to confirm when these plans will take effect, it is unlikely any change to ISA allowance would come until at least April 2026, according to experts.
A Treasury spokesman said the Treasury does not comment on market speculation.
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