Cash Isas: to scrap, or not to scrap?

Untarnished by misselling scandals, simple to understand and easy to self-administrate, Isas are "one of Britain's rare financial success stories", said Sam Brodbeck in The Daily Telegraph. But the investment industry has been "leaning on the Chancellor" to enact a major shake-up of these tax-free individual savings accounts.

The hope is that she will restrict or eliminate the tax break on cash Isas to "push more people into investing". At present, Britons have a free hand when allocating their £20,000 tax-free allowance between stocks-and-shares and cash Isas – and around two-thirds of the country's 22 million Isa holders choose the cash variety alone, said Jamie John in the FT. Reformers claim this not only reduces their own returns, but is a drag on UK growth. "The state should not be giving a tax break for us all to park our money in cash," argues Andy Briggs of Phoenix Group. Around £300 billion is currently stashed away doing nothing.

"Taking a hatchet to cash Isas is unjustified vandalism," said Sam Brodbeck. This, after all, is "post-tax income". Why shouldn't someone in their 70s or 80s "who can't afford to weather the wild swings of the stock market" – or someone saving to get on the housing ladder – be spared double taxation? Given that top savings accounts currently pay around 4.8%, the evidence is clear that ultimately "the stock market wins out". Nonetheless, as Charlotte Ransom of Netwealth points out, the real issue is "about education" rather than eliminating a useful savings tool. Rachel Reeves is already on borrowed time. "Targeting prudent savers could be the blunder that ends her political career."

The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

Although some kind of cash element is sensible – to build a household safety net – it doesn't "need to be anywhere near as generous as £20,000 a year", said Patrick Jenkins in the FT. "Something like a £5,000 upper limit for a cash Isa, and an additional £20,000 in stocks and shares, could spur a powerful revival in the UK's moribund equities culture." The culture of stock market investing in the US has enriched households across the country. We need to follow suit. "It is high time the country's tax system encouraged more economically productive behaviour" – Reeves should grasp the nettle.