In a dramatic turn amid economic uncertainty, Chancellor Reeves appears ready to drastically curtail the popular £20,000 Cash ISA allowance. With the economy reportedly collapsing on her watch, Reeves is said to be desperate for any measure that might stimulate growth—even if it means shifting the burden onto savers. A report in The Daily Telegraph now predicts that the Chancellor could slash this tax break by a staggering 80%, a move that has set alarm bells ringing among financial experts and everyday investors alike.
Under the current rules, every adult can invest up to £20,000 a year in either a Cash ISA or a Stocks and Shares ISA, with more than half of savers opting for the cash option. Cash ISAs are particularly favored by pensioners, who rely on the tax-free interest to supplement their state pensions, reported the Express.
The safety of a Cash ISA is attractive to older investors; when the stock market takes a downturn, those in their 70s or 80s with modest savings are less able to risk significant losses. However, the proposed changes could force pensioners into Stocks and Shares ISAs, exposing them to market volatility.
Rumors have been swirling for weeks after Reeves held secret meetings with major UK fund managers such as Fidelity and Phoenix. Sources indicate that these fund managers are capitalizing on the Chancellor’s vulnerability by pressuring her to dismantle the current £20,000 allowance.
A second high-level meeting was held at 11 Downing Street on Wednesday, further fueling speculation that a decision to reduce the allowance to a mere £4,000 could be imminent from April 6. The final confirmation of any changes will likely come on March 26 when Reeves unveils her Spring Statement.
The implications of such a move are significant. If the Cash ISA limit is reduced, savers eager to make use of their full tax-free allowance will have little choice but to switch to Stocks and Shares ISAs. Fund managers are well placed to benefit from this shift; for instance, Fidelity sells hundreds of Stocks and Shares ISA funds and operates an online platform, Fidelity FundsNetwork, aimed specifically at these investors.
As one industry expert put it, “In the longer run, shares will work your money harder than cash.” He added, “I’ve repeatedly warned savers against leaving too much sitting in Cash ISAs for long periods, and to shift some into shares.”
However, not everyone is willing or able to take on the increased risk that comes with investing in stocks. “Investment risk is a personal matter. Reeves should leave the decision to savers. It’s their money,” the expert noted. With UK funds predominantly invested in US markets and only a small fraction in domestic shares, the proposed changes could inadvertently boost Wall Street at the expense of the ailing FTSE 100.
For now, the advice remains clear: “Max out this year’s £20,000 Cash ISA allowance if you can. It may be 80% smaller from April.”
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