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Reforms to cash Isa savings accounts to funnel more money into Britain’s struggling stock market will not be announced in the Spring Statement this month but officials said the chancellor was still considering changes.
Rachel Reeves is said by colleagues to be determined to retain incentives in the Isa system for tax-free cash savings but is also looking at potential changes to ensure that investors have the “right balance between cash and equities”.
Emma Reynolds, City minister, this week discussed potential reforms with financial services executives and there has been growing speculation that Reeves could announce her decision in her Spring Statement on March 26.
Reeves is keen to dampen such speculation, but government insiders say changes are being considered. The chancellor has made it clear that big fiscal decisions, such as reforming Isas, must wait for a full autumn Budget.
One official said: “We are not looking at any changes to Isas in the Spring Statement. We recognise the range of views around the current Isa system and want to ensure it strikes the right balance between cash and equities.
“We want to continue to support cash savings whilst earning better returns for savers, boosting the culture of retail investment and supporting the growth mission,” they said.
The Financial Times revealed in January that lobby groups and City executives were urging the chancellor to consider capping the amount that can be held tax-free in Isas.
Scrapping the standalone cash Isa would mark the biggest reform of the savings markets since the tax-free products were launched in 1999.
The cash product allows savers to earn tax-free interest on up to £20,000 a year and are by far the most popular of the UK’s Isas. Surveys show that many Britons prefer holding cash rather than investing in the stock market because they view it as safer.
Reynolds told City figures that cash Isas still have a key role to play, but a debate is raging in the Square Mile about whether some of the money in the £300bn market could be shifted to equities.
Asset manager Fidelity International told the FT last month that it proposed a £4,000 limit. But an overhaul of the Isa market would require changes to the UK’s tax regime.
The City of London Corporation is also hosting a private roundtable event for financial services industry leaders the day after the Spring Statement on the topic of Isa reform, according to a document seen by the FT.
Senior executives at the world’s largest asset manager BlackRock, Barclays, investment site Hargreaves Lansdown, and Nationwide have been invited to attend, according to a person familiar with the plans.
The roundtable, which will be “focused on reforming the Isa framework”, will “explore potential policy options to encourage a shift from cash into stocks and shares investment when in savers’ best interests”, the document said.
It added that the discussion will “consider if investment into UK equities could be encouraged within these reforms”, adding that participants’ views would help shape recommendations that ensure the Isa framework “remains fit for purpose” for savers and the wider economy.
Senior executives of asset managers, investment sites and investment banks have urged the chancellor to “simplify” the market, warning that having several Isa products confuses people and might even prevent them from investing.
Some executives have urged the government to create a single Isa for both cash and shares, with the aim of making it easier to switch between the two.
“Recently, there have been suggestions to scrap the cash Isa,” Jon Cleborne, head of Vanguard for Europe, told the FT.
“We believe a gradual reduction in the cash tax allowance would be a better approach. Coupled with the introduction of a cash and investments Isa, it could help people save for a rainy day and, importantly, invest to reach their long-term financial goals.”
