The Treasury is reportedly considering lowering the annual cash ISA allowance to £4,000 to encourage more people to invest in UK stocks and bolster the economy.
Around £300bn in savings are currently sitting in cash ISA accounts held by more than 18 million people. The Government is hoping that incentivising savers to invest in UK stocks instead of being nestled away in bank accounts.
Emma Reynolds, the City minister, met with senior executives from NatWest, Lloyds, HSBC, Barclays, Nationwide and TSB this week, The Guardian reported, as part of informal discussions ahead of a consultation on the reforms.
Chancellor of the Exchequer Rachel Reeves arrives in Downing Street to attend the weekly Cabinet meeting (Photo: Wiktor Szymanowicz/Future Publishing via Getty)
“We agree with the Government that people in the UK should increase, if they have the wherewithal and the risk appetite, the amount of money they have got in equities,” he said.
Lobby group UK Finance, which reportedly hosted the meeting with Reynolds, has also cautioned against any changes “to avoid restricting consumers’ options”.
Banks also benefit financially from cash ISAs
This is an income stream for banks to fund loans to other customers, therefore generating money for themselves.
“They are an easy-to-understand product that help individuals start saving and set aside money for the future. The money banks and building societies hold in cash Isas is also lent out, supporting borrowers and the wider economy.”
Hinting at the initial reforms in February, Reeves explained that she wanted to create “a culture … of retail investing” to achieve “better returns” for UK savers.
She told a committee meeting in the House of Lords earlier this year: “Why do we have hundreds of billions of pounds in cash Isas?”
Banks have warned against cash ISA changes (Photo: Mike Kemp/Getty)The Government would also not be able to take any of the £300bn that remained invested into cash ISAs as this is already deposited ahead of any chance to the tax-free allowance granted for each financial year.
Stocks can prove a better investment but not as safe
The average value of the top 25 stocks and shares Isas is around £8.8 million, compared with £650,000 for the top 25 cash Isas, the figures, obtained by money app Plum in March, showed.
The minimum funds required for entry into the “top 25 club” for stocks and shares investors is £5.1m, compared with £500,000 for cash savers according to the figures.
Despite ongoing reports about the changes and hinting at reforms by Government officials, no official announcement about the changes has been made.
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Read MoreA Treasury spokesperson insisted “no decisions have been made” yet on whether to change the ISA tax-free savings amount.
“We also want to ensure that savers are getting the best returns possible, while boosting the economy to create jobs right across the UK.”
The Conservatives also warned last month that reforms to cash ISAs risk causing “damage” to the residential mortgage market.
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