The Treasury committee has warned Chancellor Rachel Reeves that reducing the annual cash Isa allowance will not encourage savers to switch to stocks and shares, and could instead push up mortgage costs. The warning comes amid speculation that the limit could be halved from £20,000 to £10,000 in the upcoming budget.
In a report published on Saturday, the cross-party committee said cutting the cash Isa allowance was unlikely to promote stock market investment. Instead, it called for better financial education to help people make informed savings decisions. The committee quoted Martin Lewis, founder of MoneySavingExpert, who said that restricting cash savings would not drive people to invest; a cultural change is needed.
Building society bosses told the committee that reducing the cash Isa allowance would have negative consequences for homebuyers. They explained that building societies rely on cash Isa deposits to fund mortgages, and reducing inflows would make the market less competitive, potentially raising mortgage rates.
Meg Hillier, chair of the Treasury committee, said the chancellor's ambition to help savers earn better returns through informed decisions was welcome, but that 'we are a long way from that point'. She added that without improved financial education, the chancellor's attempts to transform the UK's investment culture would instead hit savers and mortgage borrowers.
Speculation about the budget, due on 26 November, includes possible changes to cash Isa limits, stamp duty, inheritance tax, and a manifesto-breaking rise in income tax. The Office for Budget Responsibility's downgrading of economic productivity estimates is expected to cost the Treasury an estimated £20bn a year, adding to the pressure on the chancellor.
