Why Yorkshire Building Society is urging Rachel Reeves to show caution over future of cash ISAs: Chris Irwin

ISAs where introduced by Gordon Brown in 1999, with their primary aim to encourage more people, especially those on middle and lower incomes, to save by offering a tax-efficient way to do so. Since then the cash ISA has become a

treasured option not only for our members at Yorkshire Building Society, but across the nation, with almost eight million savers opting for the accounts each year.

Many City firms have called for the Government to put more focus on the practice of investing in the stock market, which in turn would support its mission to boost economic growth whilst potentially delivering higher returns to individuals over the long term.

Although we acknowledge that there is a place for stocks and shares ISAs, this is not always the right option for everyone, and we believe that how people save and/or invest should remain a choice. Our own research shows that 35 per cent of savers keep their money in a Cash ISA, with just 16 per cent opting to save in Stocks and Shares.

There are currently two main types of ISAs which are the cash ISA and the stocks and shares ISA.

At the moment, the most you can save in an Isa is £20,000 per tax year. However, many people have saved in these tax-efficient savings accounts for 25 years, some building healthy sums across those years.

The cash ISA remains an excellent choice for many, offering flexibility, stability and allowing savers to choose an option that best suits their financial goals and needs. They also provide a safe and reliable way to grow savings, making them an important part of any financial strategy.

Simply removing cash ISAs as an option for savers would also have detrimental impacts on the financial wellbeing of many. With the current Personal Savings Allowance (PSA) remaining unchanged since its introduction in 2016 many savers could find, without the added advantage of the tax–efficient wrapper of the ISA, they suddenly have additional liabilities to pay on their nest eggs which will in turn reduce the amount of additional income they are able to make.

With the PSA allowing some tax efficiency, some may have questioned the relevance of ISAs.

However, although basic rate tax payers receive an annual tax-free allowance of £1,000, inflation, rising interest rates and frozen tax thresholds could mean that savers only need around £28,000 in an account paying 3.50 per cent before their allowance is breached and tax is payable.

Compare this to when the PSA was originally introduced and rates were 0.25 per cent, it would have taken a savings balance of £400,000 before tax became a consideration.

As interest from a cash ISA doesn’t count towards your PSA, it remains a crucial tax efficient way to save for the short or long term.

With more than 18 million people holding a cash ISA with combined balances of over £300bn there is also significant wider reaching impacts on the industry as a whole with many banks, building societies, credit unions and other providers, using the deposits to fund loans to households and businesses.

Alongside this there is also the ongoing review between the Government and the FCA to consider.

This review is to ensure the rules around providing better support for consumers in retail investments and pensions are clear. They should help produce guidance on how organisations can help people to be able to make informed decisions about their finances with confidence – and for people to have access to the help, guidance and advice to do so.

To promote a healthy investment culture, where people have the confidence to invest as well as to save, further guidance is needed. This will not only benefit consumers but will also promote healthy markets, provide capital to drive the economy and boost growth as desired by many of those City firms.

Currently a lack of understanding, accessibility of advice and knowledge means many people find the act of investing too complicated and costly. Again, this is why we believe providing that choice to customers rather than it having to be one or the other.

We’ve supported generations of people, and millions of members, to save for important moments in life, and buy their homes, for more than 160 years. Cash ISAs have remained a popular and important part of that journey for the last 25 years and that’s why we will continue to stand up for those savers and raise our voice on these important matters.

Chris Irwin is director of savings at Yorkshire Building Society