As part of the plan being led by the Treasury, Rachel Reeves is considering whether or not to reduce the amount of money that people are allowed to save into a tax-free cash ISA each year.
But Treasury insiders are adamant that no decision has been made on whether to go ahead with the cut, emphasising that it forms only one part of the overall strategy to create more of a savings culture.
A formal consultation is expected to begin in July with the final announcement made by the Chancellor at the autumn Budget.
Barclays estimates that more than £400bn which could be invested into shares or other financial instruments is sitting in cash. “We certainly don’t have the same investing culture as you have in the US,” an industry insider told The i Paper.
NatWest CEO Paul Thwaite told MPs last week: “If you look at the UK consumer, there is risk aversion, and if you compare that to some international markets that is very stark.
When people on modest incomes do invest, they often put their money into novel instruments such as cryptocurrencies, which are hyped on social media but considered by experts to be much riskier than the stock or bond market.
How much the cash ISA limit could be reduced by
The idea is that if the maximum annual amount you can put in a cash ISA is reduced, it may incentivise people to open a stocks and shares ISA instead. Lowering the limit to £4,000, as suggested by some investment companies, might affect relatively few people: the latest data suggest that a majority of people with a cash ISA put less than £2,500 into it, with barely a fifth reaching five figures.
Reeves sowed confusion last week when she told the BBC she was “not going to reduce the limit of what people can put into an ISA” – forcing the Treasury to clarify that she was only talking about the overall limit, and curbs on cash remained on the table as an option.
What else can be done
Lloyds CEO Charlie Nunn told MPs: “Most people don’t have a significant amount to invest, and they should be getting – if they are going to go outside of cash – getting into very simple products.”
The Financial Conduct Authority is working on plans to make it easier for most people to access guidance on what sorts of investments they might like to consider, without having to seek formal financial advice which is expensive and very heavily regulated.
The new rules are expected to be finalised next year, allowing banks and other investment platforms to be more proactive in addressing the needs of their customers.
Debbie Crosbie, chief executive of Nationwide, told the Commons Treasury committee: “I think it is very difficult for people who are not incredibly wealthy to access suitable advice, and when it comes to things like equity investments I think that is important.”
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