Unlock Editor’s Digest Lock for Free
Cash reforms Reforms to ISA savings accounts Concentrating more money on the UK’s struggling stock market will not be announced in a spring statement this month, but authorities said the prime minister is still considering the changes.
Rachel Reeves is said to be determined by her colleagues to retain the incentives of the ISA system for tax-free cash savings, but is considering potential changes to ensure that investors have a “good balance between cash and stock.”
This week, city minister Emma Reynolds discussed potential reforms with financial services executives, and speculation is growing that Reeves could announce her decision in a spring statement on March 26th.
Reeves is keen to undermine such speculation, but government insiders say changes are being taken into consideration. The Prime Minister has made it clear that major fiscal decisions, such as ISA reform, will have to wait for the full fall budget.
One source said: We want to recognize the range of vision around the current ISA system and ensure that we attack the right balance between cash and stocks.
“We want to continue supporting cash savings while earning better returns from our Sabers, boosting our culture of retail investment and supporting our growth mission,” they said.
The Financial Times revealed in January that lobby groups and city officials were urging the Prime Minister to consider reducing the amounts that could be tax-free in ISAS.
Disposing of standalone cash ISAs marks the biggest reforms in the savings market since the launch of tax-free products in 1999.
Cash products allow Savers to earn tax-free interest for up to £20,000 a year, making it the most popular of UK ISAs. Research shows that many Brits prefer to hold cash rather than investing in the stock market.
Reynolds told city figures that cash Isas is still playing a key role, but debate has escalated across the square miles over whether a portion of the £300 million market can be shifted to stocks.
Asset Manager Fidelity International said last month it proposed a £4,000 limit to FT. However, overhauling the ISA market will require a change in the UK’s tax system.
According to documents seen by the FT, City of London Corporation is also holding a private roundtable event for financial services industry leaders the day after a spring statement on the topic of ISA reform.
Those familiar with the planning have been invited to attend the world’s largest asset managers, BlackRock, Barclays, investment sites Hargreaves Lansdown, and Nationwide.
The roundtable “focused on reforming the ISA framework” will “explorate potential policy options to promote the transition from equity to equity and share investments at the time of the greatest profits of the saver,” the document said.
The discussion “considers whether investment in UK stocks will be encouraged amid these reforms,” adding that participants’ views will help shape recommendations that ensure that the ISA framework is “purpose-suitable” for savers and the wider economy.
Recommended
Senior executives at asset managers, investment sites and investment banks have urged the Prime Minister to “simplify” the market and warn that having several ISA products could disrupt people and even hinder investment.
Some executives are urging the government to create a single ISA for both cash and stocks, with the aim of switching between the two easily.
“We recently had a proposal to scrap the cash ISA,” European Vanguard Head John Cleborn told FT.
“We believe that gradually decreasing cash taxes will be a better approach. Coupled with the introduction of cash and investment ISAs, it could help people save for rainy days and, importantly, invest in achieving their long-term financial goals.”
