In her last Autumn Budget, the former Chancellor of the Exchequer, Rachel Reeves announced a plan to reduce cash ISA allowances in order to encourage people to invest rather than use cash to save for the long term.
A year later and the new Chancellor, John Healey, has today announced in the Budget that he has decided to cancel the changes. The cash ISA allowance will remain at £20,000 and it looks like the other changes (essentially rules to prevent people using stocks & shares ISAs as pseudo-cash ISAs by investing only in cash like assets) will also be cancelled.
Some in the industry who were lobbying hard against the Reeves plan appear to be very happy, although personally I am not so sure.
On the one hand, the proposed changes were complicated, potentially confusing to users and would have required us and others to invest in new developments to ensure compliance with the new rules and reporting requirements. Clearly we are happy we no longer need to make changes (although I do wish the government would stop flip-flopping as we were already doing some of the preparation work).
But on the other hand, the fundamental issue that Reeves had said she was trying to deal with, namely when saving for the long term, encouraging people to invest rather than use cash savings, remains. We believe in that mission as we do think people in the UK tend to be more cautious when it comes to investing than some other countries and could benefit from understanding better the potential risks and rewards of investing. The Times is running a “Smarter with Money” campaign and we contributed some analysis to them recently for an article which explains it well: The wealth secret that’s been hidden from you for decades.
We do think there are other things that the Chancellor could do with ISAs to encourage and support people to “do the right thing”. Much of the income tax benefit of cash ISAs falls to the older generation as they are the ones with cash to save. We’d love to see tweaks that redirected some of this benefit towards the next generation through for example the government making contributions into children’s JISAs along the lines of schemes that are being introduced in other countries. If we're serious about building a nation of investors, why not start at birth?