Martin Lewis issues message to Rachel Reeves ahead of cash ISA limit 'being cut'
You can currently invest £20,000 a year into a cash ISA - but there are rumours that the Chancellor could announce plans to reduce this during her Mansion House speech
Martin Lewis has urged Rachel Reeves to introduce a new type of investment ISA instead of cutting the cash ISA limit.
You can currently invest £20,000 a year into a cash ISA - but there are rumours that the Chancellor could announce plans to reduce this during her Mansion House speech on July 15.
The MoneySavingExpert.com founder has said cutting the cash ISA limit would be “a mistake” - and suggested Rachel Reeves could create a new “starter investment ISA” instead. Martin Lewis said: “I think it’s [cutting the cash ISA limit] unlikely to work.
“If people want savings, they want savings. It's also unfair to deny older people, who have to be more risk averse, when trying to nudge younger people.
“As the Government has repeatedly said none of this is about raising revenue, I've suggested an alternative concept... Launch a new 'starter investment ISA'.
“You can put, say, up to £1,000 in (whether lump sum or dripped in monthly) and, as well as it being tax-free, you'll get, for example, a 5% boost on contributions from the state (with the cost split between investment providers and the state) as long as the money is kept in investments for a set time (for example, one year).”
A number of building societies have also today urged the Chancellor to keep the £20,000 cash ISA limit. A cash ISA is a type of savings account where you can save up to £20,000 each tax year and any savings interest you make is tax-free.
But the Government is being encouraged to try and get more people investing, for example, by saving into a stocks and shares ISA instead.
Instead of being given a set rate of interest, the rate of your return in a stocks and shares ISA is based on the performance of the firms you're invested in.
The Treasury confirmed in the March Budget that the Government is "looking at options for reforms" for the cash ISA.
Speaking to the BBC back in May, Ms Reeves said she would not reduce the overall £20,000 ISA limit - but stopped short of saying if changes to the cash element specifically were coming.
She said: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.
“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”
If you're a basic-rate taxpayer, you can earn £1,000 every tax year in savings interest before you need to pay tax. The threshold is £500 for higher-rate taxpayers, while additional rate taxpayers don't get an allowance at all.
