MPs raise concerns as Rachel Reeves looks to slash ISA cash limits

Rachel Reeves has been urged to avoid cuts to ISA cash limits in the next Autumn Budget as she looks to encourage investment into the London stock market.

The Chancellor will reportedly revive plans to cut the tax free cap after shelving previous proposals after the move faced a backlash.

The tax-free allowance could be cut in half to £10,000 a year as part of Reeves’ mission to encourage savers to switch to shares.

But a group of influential MPs have warned the Chancellor that such a move would have a “negative effect on consumers”.

In its latest report, the Finance Committee has warned that cuts will mean a less competitive market for financial products and result in higher prices for consumers.

The group’s chair, Dame Meg Hillier, said it was “not the right time” and urged the Treasury to focus on “ensuring that the public is equipped with the information and confidence needed to make informed investment decisions”.

“Without this, I fear the Chancellor’s efforts to change the UK’s investment culture will not deliver the desired change, instead harming savers and mortgage borrowers.”

Reeves warns of Labour’s house building targets

Shadow Chancellor Mel Stride said the move would “in reality be a tax attack”.

“[Reeves] has blown a huge hole in the public finances and is now looking for ways to increase the numbers,” Stride wrote in the Mail.

The Building Societies have pushed back calls for Reeves to scrap the ISA plans and warned that changing the limits would increase warning costs.

A letter from the Building Society Association (BSA) warns Labour’s housebuilding ambitions risk being crushed by the changes.

Hillier said: “This government is intended to be mutually supportive, with a real commitment to developing the sector, so it must consider carefully how changes could adversely impact Building Societies, which provide affordable mortgages to many people.”

Almost £100 billion is estimated to be held in cash ISAs by individuals with £20,000 or more who do not invest, according to AJ Bell.

The average stocks and shares ISA account is worth over £65,000 while the typical cash ISA account is worth under £13,500.

The city is divided by speculation about the change. Proponents argue that the changes will not only increase profits for savers in the long run but also provide a needed investment boost for capital-strapped companies.

Tom Selby, director of public policy at AJ Bell, said: “While the chancellor’s policy aim of increasing retail investment in the UK is the right one, cutting the ISA Cash allowance would be a clumsy and ineffective way of making that happen.”