Cutting cash ISA allowance could backfire - and make mortgages more expensive, MPs warn

Cutting the yearly allowance for currency ISAs could backfire successful aggregate ways, an influential radical of MPs has warned the government.

For months, speculation has been increasing that the chancellor whitethorn slash the yearly bounds for tax-free savings - perchance from £20,000 to £10,000.

The authorities is hoping to promote savers to put successful stocks and shares ISAs instead, which tin connection greater semipermanent returns and amended fiscal health.

But according to the Treasury Committee, slashing allowances would beryllium improbable to execute this - and could pb to higher prices for consumers.

Building societies trust connected currency ISA savings to money owe lending - and a driblet successful deposits mightiness pb to higher involvement rates oregon less products connected the market.

Committee chairwoman Dame Meg Hillier said "we are a agelong way" from achieving a civilization wherever important numbers of Britons put successful the banal market.

"This is not the close clip to chopped the currency ISA limit," she warned. "Instead, the Treasury should absorption connected ensuring that radical are equipped with the indispensable accusation and assurance to marque informed concern decisions.

"Without this, I fearfulness the chancellor's attempts to alteration the UK's concern civilization simply volition not present the alteration she seeks, alternatively hitting savers and borrowers."

Read more: How to get started with a stocks and shares ISA

The latest figures suggest two-thirds of contributions to ISAs successful the 2023/24 taxation twelvemonth went to currency accounts - bringing full holdings to £360bn.

An estimated 14.4 cardinal consumers solely prevention successful a currency ISA, with the mean equilibrium lasting astatine £6,993.

Surveys suggest that, if allowances were cut, consumers whitethorn determination their currency to alternate savings accounts wherever they would person to wage taxation connected interest.

Skipton Group enforcement Charlotte Harrison antecedently warned: "Building societies, which funds implicit a 3rd of each first-time purchaser mortgages, trust connected retail deposits similar currency ISAs to money their lending.

"If ISA inflows fall, the outgo of backing is apt to rise, and that means mortgages could go some much costly and harder to access."

She claimed a argumentation alteration could extremity up "penalising savers who privation low-risk, flexible options" - adding: "Cash ISAs work. Undermining them doesn't."

Read much wealth news:
What's down astonishing emergence successful retail sales
Tesco rolls retired bodycams to information staff

Chancellor Rachel Reeves said: "At the moment, often returns connected savings and returns connected pensions are little than successful comparable countries astir the world.

"I bash privation to marque definite that erstwhile radical enactment thing speech for the future, they get bully returns connected those savings."

The committee's informing comes amid speculation implicit whether Ms Reeves volition rise income taxation astatine adjacent month's budget - breaking a cardinal Labour manifesto pledge.

Newspaper reports person suggested that the basal complaint of income taxation could beryllium accrued for the archetypal clip since the 1970s - up 1p to 21%.

This could rise astir £8bn and assistance tackle a achromatic spread successful the country's finances, but risks squeezing consumers further arsenic a cost-of-living situation continues.

A 1p emergence to the higher set of income taxation - taking that complaint to 41% - is besides believed to beryllium nether consideration, but this would lone boost the nation's coffers by £2bn.

Ms Reeves has refused to regularisation retired specified a move, telling Sky's lawman governmental exertion Sam Coates that she is looking astatine some taxation rises and spending cuts up of her connection to the Commons connected 26 November.