As Chancellor John Healey delivers his first Budget in just two weeks' time, there is one urgent announcement he must make to help both savers and investors.
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he → deliver → savers
And appealingly, for a cash-strapped Chancellor struggling to balance the books, it's completely free.
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it → strap → books
Healey must reverse plans set in motion by his predecessor to slash the cash Isa allowance to £12,000 for under-65s.
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Healey → reverse → under-65s
The poorly thought-out policy from Rachel Reeves threatens to sabotage the much-loved Isa.
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policy → think → Isa
It will create confusion for savers, pile on costs and red tape for industry, and add complexity for no real gain.
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It → create → gain
That's why today, This Is Money and the Daily Mail are making a final demand to Healey to keep his hands off our cash Isas.
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Is → make → Isas
His predecessor ignored our common-sense appeal – as well as those from the financial industry, MPs and ordinary savers – choosing instead to forge ahead with a destructive policy.
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predecessor → ignore → policy
Healey has the opportunity to put things right.
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Healey → have → things
It's not too late for John Healey to reverse Rachel Reeves's ill-advised cash isa raid
Our new research from investment platform Trading 212 today reveals that if Healey doesn't scrap the proposed changes once and for all, savers could, in fact, be put off investing – the exact opposite to what the new rules are supposedly designed to do.
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rules → reverse → what
The Isa is among the most popular financial products in the UK – more than 22 million adults have one in their financial armoury.
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adults → have → armoury
In a world of financial complexity where everything from mortgages to pensions are riddled with rules to get your head around, the Isa is refreshingly simple.
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Isa → riddle → head
You can put up to £20,000 of savings into Isas each tax year, where all of your returns – be they interest, investment growth or dividends – are completely shielded from HMRC.
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they → put → HMRC
You can open as many as you like –an easy-access cash one, a fixed-rate bond, a stocks and shares version – so long as you limit yourself to £20,000
a year.
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you → open → 20,000
For years, Isa holders have been trusted to use their allowance in the way that suits them best.
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that → trust → them
But from April next year, all of this is set to change – unless Healey intervenes.
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Healey → set → this
Under-65s will no longer be allowed to move their savings between cash and stocks and shares Isas as they choose.
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they → allow → Isas
Instead, they will only be able to put £12,000 of their allowance into cash Isas – and they will be forbidden from moving existing stocks and shares holdings into a cash Isa.
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they → put → Isa
The long-term pledge that Isas will provide a watertight protection against tax will be broken.
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Isas → provide → tax
Cash held in a stocks and shares Isa will be taxed at a flat rate of 22 per cent – whether you're over or under 65 and have exceeded your cash Isa limit or not.
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you → hold → limit
Your Isa provider will take the tax directly from your balance and pay it to HMRC.
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provider → take → HMRC
And you won't be able to use your personal savings allowance – which allows savers to earn a certain amount of interest tax free – towards this bill.
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savers → use → bill
Then there are further rules to stop Isa holders getting around the main rules, which creates even more of a muddle.
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which → be → muddle
For example, cash-like investments held in non-cash Isas will also incur tax, if they make up 100 per cent of the investments you hold in your account.
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you → hold → account
Cash-like investments are typically money market funds – low-risk investments in short-dated bonds.
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investments → date → bonds
Suddenly, what started as a simple, trusted financial product starts to look increasingly convoluted and off-putting.
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started → start → product
All this confusion might be worth it if the rules increased investment into the UK economy – as Reeves hoped they would.
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they → increase → economy
Chancellor John Healey has the opportunity to boost both saving and investing if he reverses the planned crackdown on cash Isas
But even HMRC predicts they won't make a difference.
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they → have → difference
Its report into the changes last month revealed they are 'not expected to have a significant macroeconomic impact'.
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they → reveal → impact
What it will have an impact on is Isa providers – who will be bound by new red tape that is expected to cost them £6million just to set up.
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that → bind → 6million
HMRC will also have to find
some cash as well and implement changes to its IT systems – not ideal for a body already groaning under ever-growing bureaucracy and insufficient resources.
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HMRC → have → bureaucracy
The changes might be forgiven if they did encourage more savers to invest.
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they → forgive → savers
After all, investing tends to produce better returns than cash savings in the long term.
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investing → tend → term
If you have savings that you won't need for at least five to ten years, it is worth considering investing them.
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it → have → them
But new findings from platform Trading 212 shared exclusively with This is Money reveal the restriction on cash Isas may do the exact opposite – savers could be hindered rather than helped to invest.
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savers → share → 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
But they don't just stick to cash.
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they → stick → cash
More than 300,000 cash Isa savers have subsequently taken the leap and started to invest for the first time, Trading 212 revealed.
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Trading → take → time
They may have started purely as cash savers, but they now invest billions of pounds into the markets.
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they → start → markets
And – most strikingly – 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 → hold → Isas
Of those who started with a cash Isa and went on to invest, they have now produced an average return of 12.7 per cent a year – significantly more than if they'd stayed in cash.
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they → start → cash
…and 32 more, not listed.
The Aporia
