Chancellor Rachel Reeves has confirmed in the Spring Statement that reforms to Individual Savings Accounts (ISAs) are on the horizon, hinting that the cash ISA limit may still be cut.
Rumours before the Spring Statement suggested that Reeves was considering instituting a £4,000 annual cap on cash ISA contributions to encourage investment in the stock market.
Currently, investors have a tax-free allowance of £20,000 to deposit into ISAs, which can be split between cash ISAs and stocks and shares ISAs. Brits currently hold around £300bn in cash ISAs.
Reeves began talks with senior City executive in recent weeks to float the idea of a cut to the cash ISA limit, who noted that the stock market has historically provided better returns in the long-run, while also allowing billions to be invested back into the British economy.
However, the Treasury received strong pushback from some media outlets and abandoned the reforms for the Statement itself.
Now, the Spring Statement has confirmed that the government is still mulling changes to the ISA regime, especially to the cash ISA.
“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,” it said.
ISA reform was pledged by Labour in the run up to last year’s election, and many in the financial industry have been calling for changes for some time.
In December, AJ Bell boss Michael Summersgill told City AM that ISA simplification was expected to be a priority for Reeves in 2025.
AJ Bell and other investment platforms have been pushing for simplification through a combination of the investment wrappers in a single product.
“While we support the principle of encouraging more people to invest through ISAs, it’s understandable that the Chancellor has delayed decisions on cash ISA changes until the Autumn Budget,” said Andrew Prosser, head of investments at Investengine.
“It’s encouraging to see the Treasury taking a serious look at ISA reform,” added Rachael Griffin, tax and financial planning expert at Quilter.
“ISAs are long overdue some careful thought to ensure they are both simple and produce the right behaviours.”
In addition, the government said in the Spring Statement that it was working closely with the Financial Conduct Authority to deliver a system of targeted support “to give people the confidence to invest”.
The news comes after the FCA unveiled its plan earlier this week to push savers to take more risk with their investments, such as through cracking down on fraud.
As part of the Spring Statement, the government also announced it would continue to look to provide a supportive policy environment for entrepreneurs and venture capital firms, especially the the role of tax reliefs like VCTs and EIS schemes.
“As part of this, the government will be holding a series of roundtables with key stakeholders over April,” it said.