John Healey is expected to abandon his predecessor Rachel Reeves' 'car crash' plans to cut the cash Isa allowance when he delivers his first Budget this afternoon.
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he → expect → Budget
In a victory for This Is Money and the Daily Mail's Hands off our cash Isas campaign, the Chancellor will scrap plans to slash the allowance from £20,000 to £12,000 for under-65s from next April.
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Chancellor → scrap → April
A fortnight ago, we called on the Chancellor to stop the cash Isa raid before it was too late, as the poorly thought-out policy from Reeves threatened to sabotage Britain's simplest and best-loved saving and investing product.
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policy → call → product
Reeves claimed her cut would encourage more investment into British companies but it was met with horror by industry experts when it was announced last autumn.
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it → claim → experts
Experts from investment platforms, banks and building societies had warned the former Chancellor that a two-tier Isa allowance would backfire and take savers and investors back to an inferior system axed in 2014.
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allowance → warn → 2014
Healey is expected to say it would be better to reverse the cut and educate people about investing in stocks and shares to generate higher returns than to cut tax breaks, the Financial Times reported.
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Times → expect → breaks
Healey will restore the cash Isa limit to £20,000 reversing Rachel Reeves' looming cut
Cash Isas are the UK's most popular savings product and are exempt from tax on interest, while stocks and shares Isa investments face no capital gains or dividend taxes.
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investments → restore → gains
Savers can choose to put their £20,000 annual allowance into either cash or stocks and shares Isa, or a mix of both.
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Savers → choose → both
Since 2014, Isa holders have been trusted to use their allowance in the way that suits them best.
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that → trust → them
Prior to that the cash Isa limit was capped at half the overall allowance.
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limit → cap → allowance
Under Reeves' plans, under-65s would only have been able to put £12,000 of their allowance into cash Isas – and would be forbidden from moving existing stocks and shares holdings in a cash Isa.
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under-65s → put → Isa
The policy created a last-minute rush into cash Isas at the beginning of the tax year.
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policy → create → year
A fortnight ago, we revealed findings from platform Trading 212 shared exclusively with This is Money that showed cutting the cash Isa limit could do the exact opposite of what was intended – as savers could be hindered rather than helped to invest.
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savers → reveal → opposite
Trading 212 frequently offers some of the best cash Isa rates and so draws in hundreds of thousands of savers.
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Trading → offer → savers
Our pick of the five best cash Isas, from easy access to fixed rates
More than 300,000 of those cash Isa savers have subsequently taken the leap and started to invest for the first time, Trading 212 revealed.
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Trading → fix → time
It said this group now hold more wealth in stocks and shares Isas and general investment accounts than they do in their original cash Isas.
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they → say → Isas
This is Money and Daily Mail urged the Chancellor to stop the cut to the £20,000 cash Isa limit
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Mail → urge → limit
Tom Selby, director of public policy at AJ Bell, said: 'Rachel Reeves' Isa reforms were a car crash, lamented by most of the retail investment industry, who criticised the complexity they would add for little consumer benefit, and building societies, who warned they would increase mortgage costs.
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they → say → costs
'Given the Prime Minister's main focus is on easing cost-of-living pressures, we shouldn't be surprised the cash Isa cut is set to be unceremoniously ditched.'
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cut → give → pressures
City firms had lobbied Reeves to scale back the tax breaks on cash Isas to boost investment in the flagging UK stock market.
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firms → lobby → market
A lower allowance of between £4,000 and £10,000 had been floated, before the £12,000 limit was confirmed last year.
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limit → float → 4,000
The reforms also introduced measures designed to stop savers from getting around the lower cash limit by holding large cash balances within stocks and shares Isas.
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reforms → introduce → Isas
Interest earned on cash held in an investment Isa was set to be charged at 22 per cent.
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Interest → earn → cent
Selby added: 'While the central aim of encouraging more people to invest for the long-term was the right one, the route Healey's predecessor chose to achieve this was painfully convoluted, hardening the border between short-term saving and long-term investing and adding overwhelming complexity – not to mention a tax charge – into the system in the process,' said Selby.
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Selby → add → process
Winston Ruddick, senior financial planner at Broadstone said: 'Cash Isas are a simple, accessible and widely understood savings product, often providing a first step towards building longer-term savings habits and financial security.
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Isas → say → habits
They play a vital role in financial planning, particularly for those with shorter-term savings goals or a lower appetite for risk.'
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They → play → risk
HMRC's own analysis found that cutting the cash Isa limit would do little to improve the economy but have a 'significant' impact on Isa managers such as banks and investment platforms.
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cutting → find → banks
Healey's decision to reverse the cuts will be welcomed by banks and building societies, which are bracing for a tax raid on their profits.
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which → reverse → profits
Some investment industry figures who had argued for a cut were less pleased with the Government's U-turn.
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who → argue → turn
'The Chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy,' said Michael Healey, chief executive of IG Consumer.
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Healey → squander → Consumer
'At a time when Britain desperately needs growth, protecting tax incentives that encourage people to sit on cash rather than invest is a deeply misguided decision.
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that → need → cash
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This → take → commission
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they → choose → team
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This → affect → independence
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Terms → apply → offers
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