Chancellor John Healey has abandoned plans to reduce the annual tax-free cash ISA allowance for individuals under 65. The allowance will remain at £20,000 per year, instead of being cut to £12,000 as previously proposed, effective from April.
This decision marks a significant victory for the Daily Mail and This is Money, which had campaigned against the planned reduction. The proposal, part of broader fiscal measures, had drawn criticism for potentially complicating savings for individuals and impacting building societies.
Healey announced on Wednesday that the £20,000 tax-free limit for ISAs will be maintained for savers of all ages. This means taxpayers can continue to contribute up to £20,000 annually into tax-free ISAs, with the flexibility to allocate it between cash and stocks and shares ISAs as they see fit.
The original plan had faced opposition from consumer advocates and financial institutions. Experts warned that the changes could deter savers from utilizing the ISA system, which is popular in the UK with over 22 million adults holding one. Concerns were raised about increased complexity and potential charges for interest earned on cash held within investment ISAs.
Dame Meg Hillier, chair of the Treasury committee, called the reversal a "victory for common sense" and lauded the Daily Mail's "Hands Off Our Cash Isas campaign." She highlighted that the proposed changes would have caused confusion for customers and logistical issues for building societies.
Financial analysts like Tom Selby of AJ Bell described the initial ISA reforms as a "car crash" and welcomed the decision to abandon the cash ISA cut. Rachel Springall of MoneyfactsCompare expressed relief but noted the wasted time and resources by providers preparing for the scrapped changes.
However, the move disappointed some city firms who had lobbied for reduced tax breaks on cash savings to encourage greater investment in the stock market. Michael Healy, chief executive of IG Consumer, stated that the Chancellor had "squandered a golden opportunity to help British households build long-term wealth."
In place of the ISA cut, Healey indicated plans to work with the financial sector on introducing a new "starter ISA" aimed at rewarding first-time investors. The Chancellor also confirmed an increase in savings interest tax rates by two percentage points, bringing them to 24 per cent, 44 per cent, and 40 per cent from April.