Rachel Reeves to launch massive ISA shake-up as pressure mounts to cut £20,000 tax-free allowance
Chancellor Rachel Reeves is preparing to launch a review of the ISA market within weeks, according to new reports.The move comes as pressure mounts to reform the current £20,000 tax-free allowance system.The review aims to encourage savers to channel more money from tax-free cash into British stocks.The Treasury consultation could be unveiled at Reeves' Mansion House speech to City executives in July, when the Government plans to publish its Financial Services Growth and Competitiveness Strategy.The UK currently has four main ISA products, with the cash ISA being by far the most popular, housing £300billion of savings at present. ISAs allow individuals to save and invest up to £20,000 a year free of income and capital gains tax.City firms have been urging Reeves to scale back tax breaks for cash ISAs, with savers pouring £4.2billion into these accounts in March alone.This represents an increase of almost one-third compared with the previous year, according to investment site Hargreaves Lansdown.Companies including Phoenix and the London Stock Exchange Group have argued that money in cash ISAs could generate better returns if invested in stocks.The Times reported the Treasury paper is expected to lead to one of the biggest shake-ups of the ISA market since its creation in 1999. Any reforms flowing from the consultation could feature in Reeves' Autumn Budget.Fidelity International is among the firms to have called for a single Isa product, within which individuals could move between cash and stocks and shares, and suggested limiting the cash portion to £4,000.The Treasury said "no decisions have been taken" but that the Government was "looking at options for reforms to ISAs that get the balance right between cash and equities".Tom Selby, director of public policy at investment site AJ Bell, said the Government was "absolutely right to be looking at whether the current Isa system does enough to foster a healthy investing culture in the UK".LATEST DEVELOPMENTS:ISA row continues as savers hit with 'unfair' £1,000 penalty for accessing their own cashSavings crisis as Britons 'rush to tax-free accounts' ahead of Rachel Reeves's ISA raidCash ISA savers urged to take urgent action ahead of major change coming in MayAJ Bell has long campaigned for simplification of the ISA system to help reduce choice complexity. The company's CEO, Michael Summersgill, said: "ISAs have grown to become incredibly popular, with over 22 million ISA holders in the UK. But over time a patchwork quilt of ISA products has emerged, each with their own rules and regulations. Starting with a blank sheet of paper, nobody would design the system we have now."AJ Bell's analysis of HMRC figures suggests around £100billion is held by people with £20,000 or more in Cash ISAs who have not invested a penny in Stocks and Shares ISAs."Millions of people have large cash balances easily sufficient to serve as a 'rainy day' emergency fund but hold no investments whatsoever," Summersgill noted.He argued that simplification is key to unlocking investment potential. "Reducing complexity and simplifying consumer choice by merging Cash ISAs and Stocks and Shares ISAs into a single account would create a more fluid landscape."This would allow providers to combine the benefits of cash saving and investing within a single product wrapper.Summersgill warned against gimmicks like "the ill-fated UK ISA" that add complexity rather than solving problems."The current ISA framework labels people either as a cash saver or an investor. In reality, however, most people need a bit of both," he said.Reeves stated earlier this month that she wants "to create more of a culture in the UK of retail investing, like what you see in the United States".This would help savers achieve better returns while supporting economic growth.Not everyone supports the potential reforms, however. Carol Knight from The Investing and Saving Alliance cautioned that "cutting the tax benefits of cash ISA will not encourage people to invest more".
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Chancellor Rachel Reeves is preparing to launch a review of the ISA market within weeks, according to new reports.
The move comes as pressure mounts to reform the current £20,000 tax-free allowance system.
The review aims to encourage savers to channel more money from tax-free cash into British stocks.
The Treasury consultation could be unveiled at Reeves' Mansion House speech to City executives in July, when the Government plans to publish its Financial Services Growth and Competitiveness Strategy.
The UK currently has four main ISA products, with the cash ISA being by far the most popular, housing £300billion of savings at present. ISAs allow individuals to save and invest up to £20,000 a year free of income and capital gains tax.
City firms have been urging Reeves to scale back tax breaks for cash ISAs, with savers pouring £4.2billion into these accounts in March alone.
This represents an increase of almost one-third compared with the previous year, according to investment site Hargreaves Lansdown.
Companies including Phoenix and the London Stock Exchange Group have argued that money in cash ISAs could generate better returns if invested in stocks.
The Times reported the Treasury paper is expected to lead to one of the biggest shake-ups of the ISA market since its creation in 1999. Any reforms flowing from the consultation could feature in Reeves' Autumn Budget.
Fidelity International is among the firms to have called for a single Isa product, within which individuals could move between cash and stocks and shares, and suggested limiting the cash portion to £4,000.
The Treasury said "no decisions have been taken" but that the Government was "looking at options for reforms to ISAs that get the balance right between cash and equities".
Tom Selby, director of public policy at investment site AJ Bell, said the Government was "absolutely right to be looking at whether the current Isa system does enough to foster a healthy investing culture in the UK".
LATEST DEVELOPMENTS:
- ISA row continues as savers hit with 'unfair' £1,000 penalty for accessing their own cash
- Savings crisis as Britons 'rush to tax-free accounts' ahead of Rachel Reeves's ISA raid
- Cash ISA savers urged to take urgent action ahead of major change coming in May
AJ Bell has long campaigned for simplification of the ISA system to help reduce choice complexity.
The company's CEO, Michael Summersgill, said: "ISAs have grown to become incredibly popular, with over 22 million ISA holders in the UK. But over time a patchwork quilt of ISA products has emerged, each with their own rules and regulations. Starting with a blank sheet of paper, nobody would design the system we have now."
AJ Bell's analysis of HMRC figures suggests around £100billion is held by people with £20,000 or more in Cash ISAs who have not invested a penny in Stocks and Shares ISAs.
"Millions of people have large cash balances easily sufficient to serve as a 'rainy day' emergency fund but hold no investments whatsoever," Summersgill noted.
He argued that simplification is key to unlocking investment potential.
"Reducing complexity and simplifying consumer choice by merging Cash ISAs and Stocks and Shares ISAs into a single account would create a more fluid landscape."
This would allow providers to combine the benefits of cash saving and investing within a single product wrapper.
Summersgill warned against gimmicks like "the ill-fated UK ISA" that add complexity rather than solving problems.
"The current ISA framework labels people either as a cash saver or an investor. In reality, however, most people need a bit of both," he said.
Reeves stated earlier this month that she wants "to create more of a culture in the UK of retail investing, like what you see in the United States".
This would help savers achieve better returns while supporting economic growth.
Not everyone supports the potential reforms, however. Carol Knight from The Investing and Saving Alliance cautioned that "cutting the tax benefits of cash ISA will not encourage people to invest more".
