'Delighted': Building societies hail John Healey scrapping Rachel Reeves's Cash ISA changes
Building societies have hailed Chancellor John Healey’s decision to scrap Rachel Reeves’s plans to cut cash savings limits which had been due to come into effect from April.
Ms Reeves had set out measures to cut annual Cash ISA allowances for under-65s from £20,000 to £12,000 in a bid to encourage more investment by British savers in stocks and shares, which can have higher rates of return and support the growth of listed companies.
However the idea had been unpopular in many quarters, with questions over whether the plan would have the desired impact and building societies warning cutting the limits would reduce the money held in savings with them and thereby affect the mortgage rates they could offer customers.
Mr Healey, who at the start of his Budget speech praised Ms Reeves for her stewardship of the economy while Chancellor, subsequently announced: “I’m taking a new approach today to encourage people on ordinary incomes to save and to invest.
"I will not go ahead with the cut to the tax-free amount people can put into a cash ISA. The limit will stay at £20,000 per year, tax-free – for people of all ages.
"To make investment more accessible, I will work with the sector to create a new ‘Starter ISA’ to reward first-time investors.”
But Mr Healey also announced plans to increase all rates of income tax applied to savings income outside of ISA limits by two percentage points. The savings basic rate will be 24 per cent, the savings higher rate will be 44 per cent, and the savings additional rate will be 49 per cent in a move the government estimates will generate £590m by 2032.
Annette Barnes, Leeds Building Society’s Chief Executive Officer, said: “I’m pleased the Chancellor has listened to concerns raised across the sector. Cash ISAs are simple, trusted products that give people choice over how they manage their money, so this is very welcome news for our members and for savers more widely.
"Many factors determine mortgage rates, and we can’t predict the future, but as a building society savings are an important source of funding for our mortgages. A healthy and sustainable level of savings funding can give us greater capacity to lend competitively.
“We support the ambition to help more people invest, but that shouldn’t come at the expense of cash savings. Saving and investing can go hand in hand, and retaining the current Cash ISA allowance gives people the certainty and flexibility to make the financial choices that are right for them.”
Susan Allen, Chief Executive at Yorkshire Building Society said: "Cash ISAs play an important role in helping millions of people build financial security through a simple, accessible and tax-efficient way to save. They remain hugely popular with savers, particularly those putting money aside for a first home or a rainy day. Maintaining the current allowance provides certainty and choice for consumers, while the savings held in Cash ISAs support the funding building societies use to help more people achieve homeownership.”
“We will keep working with the Government on practical changes that help people save, own a home and get the housing ladder moving.”
Sarah Harrison, chief executive of the Building Societies Association, said: “We are delighted that the Chancellor has listened. The decision to keep the Cash ISA limit at £20,000 for all savers is great news and provides welcome certainty.
“Cash ISAs are simple and trusted by millions of people. They help savers build financial resilience, save for a home and manage their money in retirement. They also provide vital funding for mortgages and business lending, and retaining the current allowance will make the new First-time Buyer ISA simpler to introduce.
“We support helping more people to invest, but this should be achieved by raising awareness of the benefits and raising confidence, rather than restricting saving. Today’s decision is welcome news for savers, homebuyers and the wider economy."
But Wander Rutgers, UK CEO of investment platform Lightyear, raised concerns about the introduction of another ISA product.
“Scrapping the cash ISA cut was a welcome step to maintain simplicity for savers and investors, but the Chancellor undid it straight away by introducing a new Starter ISA to a list of wrappers that already overlap. The government seems to keep pitting savers and investors against each other, and creating policies to force Brits to pick a side. But they're the same people, and saving and investing go hand in hand.”