Warning over new cash ISA limit 'different to what had been predicted' - Birmingham Live

Chancellor Rachel Reeves is considering setting the cash ISA allowance at £12,000, which is a shift from the previously reported figure of £10,000. This potential change has sparked concern among savers and financial experts alike, as it differs from what many had expected. Recent data from Plum highlights that a significant portion of British cash ISA holders—about 68%—oppose proposals to reduce the annual tax-free allowance announced on November 26. Victor Trokoudes, founder and CEO of Plum, has voiced a strong warning. He suggests that rather than encouraging the intended move of funds into UK equities, these new regulations may instead push investors to funnel their money into American companies. This, he argues, would be a counterproductive outcome for the UK economy. According to Plum's research, 37% of people say they’d shift their money into regular savings accounts, while 20% would move it into current accounts. Only 18% indicated they would be willing to invest in British stocks. Trokoudes further highlighted the challenges posed by fiscal drag, especially with tax thresholds expected to remain frozen beyond April 2028. This situation could mean more people end up paying tax on their savings due to surpassing personal savings allowances. He described it as particularly unfair to penalize savers amid rising inflation, driven by higher food prices and regulated utility bills. He also emphasized that if the changes do push more ISA users towards investing, capital might shift away from UK banks and building societies—institutions that primarily lend to British consumers—and instead flow into US-listed companies. This would likely not be the Chancellor’s original aim. He stresses that the focus should be on incentivizing investment instead of punishing savers. Suggestions include expanding the stocks and shares ISA allowance, introducing starter bonuses to encourage new investors, and simplifying ISA products into a single, more straightforward offering. Carol Knight, CEO of The Investing and Saving Alliance (TISA), echoed similar sentiments. She pointed out that influential voices like the Select Committee share the Chancellor’s goal to boost investment in stocks and shares but warned that cutting the cash ISA allowance won’t meet that goal. Instead, savers might move funds into lower-yielding products, breach personal savings allowances, or stop saving altogether. Knight urged the Chancellor to reconsider any moves to reduce cash ISA limits. She recommended directing efforts towards improving financial education, providing clearer and higher quality information about investment products, and finalizing the Targeted Support regime to boost investor confidence. The consensus among experts is clear: reducing the cash ISA limit may have unintended consequences that could stifle saving and investment growth rather than encourage it.