Reeves doesn’t deny plan to slash cash ISA limit

Silverbrooks

... when I first heard about the threat to ISAs I was really scared and angry.

Why would you be if all you have is £20,000 in an ISA?

Perhaps you have other savings too.

Even if Reeves were to say she was going to remove all the tax advantage from a cash ISA (which is highly unlikely), then assuming it's paying 5% then it's yielding £1,000 p.a.

That's currently tax free but don't forget there is also a Personal Savings Allowance of £1,000 for basic rate taxpayers which can be set again interest from savings held in a taxable account.

At the moment, someone could have around £40,000 saved earning 5% and not have to pay any tax on it.

Exactly! And I wouldn't call anybody with savings of £40,000 poor.

But I’ve been saving for a rainy day ever since I was divorced ( something that I never expected would happen to me). Now all the things I’ve been saving for seem to be coming up for replacement. I need my money to be earning interest because of inflation (the guy who frames pictures for me says the price of glass has doubled) but it also has to be instant access and totally safe because it’s it’s all I have. So when I heard about ISA’s the other day my heart sank and I did feel I was being victimised for trying to be careful with money and looking to the future. And I’m saying this as someone who has dreamed of a Labour government for years thinking I would feel safe in my old age. I didn’t need the WFA and wasn’t critical of its removal but I felt as if I didn’t know what was going to be removed next. The government ( who I still support and have faith in) need to realise that people like me that fall just below any benefits that could be claimed are feeling worried. It’s probably because, although I’m careful with money, anything to do with savings or economics in general, is like a foreign language to me! Of course, instead of moaning on here I need to write to my MP which I will do.

I really don’t understand your worries MayBee. Although nothing has been announced, all that commentators have been talking about is a decrease in the amount you can invest in cash ISAs each year, in an attempt to steer savings into stocks and shares ISAs. Reeves is singularly unlikely to try to tax retrospectively interest earned on ISA savings. If you need work done on your house or to replace anything, do it now because prices will rise far more than interest on your savings will.

I don't understand. Your money will still be earning interest.

Nationwide have hit out as the rumoured changes:

However, cash ISAs are a key source of funding for banks, building societies, credit unions and other providers, which use the deposits to fund loans to households and businesses.

Tom Riley, director of retail products at Nationwide building society, a leading provider of the tax-free accounts, said: “Cash ISAs not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.”

He added: “Any limitations on lending would further impact those looking to get a foot on the housing ladder at a time when saving for a deposit remains a significant challenge.”

If it came to pass that people took money out of cash ISAs to invest in stocks and shares, banks would still have to find a way to attract cash investors and they would do that by offering good interest rates.

MayBee70 I agree with Barleyfields. Look at what needs doing and prioritise - get started now because prices will rise faster than the interest.

Barleyfields

I really don’t understand your worries MayBee. Although nothing has been announced, all that commentators have been talking about is a decrease in the amount you can invest in cash ISAs each year, in an attempt to steer savings into stocks and shares ISAs. Reeves is singularly unlikely to try to tax retrospectively interest earned on ISA savings. If you need work done on your house or to replace anything, do it now because prices will rise far more than interest on your savings will.

That’s good advice. Materials costs are constantly rising, and the situation in America is likely to push prices up further.

MayBee70 I understand your concerns. However, we just don't know what is going to happen. It's likely the amount which can be saved in ISAs will be reduced, not abolished altogether. Unless you're saving £20,000 a year (which I think is unlikely from what you've written) you have nothing to worry about. I doubt if you're a higher rate taxpayer either. As Silverbrooks has explained, you can have up to £40,000 in savings accounts without paying any tax. If you're approaching that amount, I think any advisor would tell you to spend some now. As explained, services will only increase in price, but you can't be taxed on money you've spent on a new car or boiler, etc.

Silverbrooks

I don't understand. Your money will still be earning interest.

Nationwide have hit out as the rumoured changes:

However, cash ISAs are a key source of funding for banks, building societies, credit unions and other providers, which use the deposits to fund loans to households and businesses.

Tom Riley, director of retail products at Nationwide building society, a leading provider of the tax-free accounts, said: “Cash ISAs not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.”

He added: “Any limitations on lending would further impact those looking to get a foot on the housing ladder at a time when saving for a deposit remains a significant challenge.”

If it came to pass that people took money out of cash ISAs to invest in stocks and shares, banks would still have to find a way to attract cash investors and they would do that by offering good interest rates.

The building societies are more concerned than the banks because they operate differently.

Yes, I understand the difference between retail and wholesale funding.

It seems to me that in her quest to collect more money, Rachel Reeves is finding more and more roundabout ways to do so. I guess it is what it is, but it's becoming a bit tedious having to get one step ahead and finding alternative ways to hold on to one's money!

I think Labour need to communicate with the electorate better if they’re worrying people like me. Thank goodness for TRIP’s with Rory doing his idiots guides to everything!

MayBee70

I think Labour need to communicate with the electorate better if they’re worrying people like me. Thank goodness for TRIP’s with Rory doing his idiots guides to everything!

Their comms are shocking, I agree. Given the way the press manipulate and jump on everything they do, they really need to be one step ahead, but they aren't.

However, cash ISAs are a key source of funding for banks, building societies, credit unions and other providers, which use the deposits to fund loans to households and businesses.

Banks absolutely do not fund loans with deposits. Bank loans are new money, created issued under licence from the Bank of England. When the loan is repaid the money no longer exists, it's extinguished. The banks make their profit from the interest they charge on loans, which is usually higher than the rate of inflation. Loan issuance adds to their profits (and banker's bonuses). That's one reason for the 2008 global financial crisis, banks recklessly issued loans to all and sundry, regardless of their ability to repay. They were able to do this because of 'light touch regulation'. Reeves wants to deregulate the banking sector again, a foolish and dangerous move...

Building societies do loan deposited funds, but there aren't many building societies left. Many of the institutions we might still think of as 'building societies' are in fact banks. Loaning deposited funds makes the building societies far more careful about who they lend to.

P.S The Nationwide is still a building society.

Doodledog

Norah

Doodledog

Agreed, Allira, which is why lowering the amount that can be made in tax-free interest is (IMO) a fairer idea than increasing taxes on those who are already stretched.

Nobody suggested increasing taxes on those who were already stretched.

No, but my point is that assuming money needs to be collected, it should be done so in as fair a way as possible. People are taxed on earnings of over £12500, which is a very low threshold, yet at the same time people can save significant sums of money and pay no tax on the interest. Does that really seem fair?

Like you, I would like to see thresholds raised, but the principle would still apply.

Does that seem fair? No.

All taxes need to be examined, then a comprehensive plan, readjusting all taxes fairly. I've many ideas - nobody asks me.

Allira

Well, considering how much university fees are and may be in the future, I thin saving for a child's future should be encouraged. It's not just fees, it's living costs too.

If they don't go to university, perjaps an apprenticeship, low-paid job, house deposit, then that cushion will help them whatever they decide to do if they have one.

Many young people can never afford the deposit for a house now.
.

I well understand Uni fees for our children&grandchildren.

I was attempting to point out that if adult savers, over 18, 'lose' part of the amount they can invest in cash ISAs yearly - I would surely hope children would also be equally proportionally impacted.

Silverbrooks

No, we don't but it would be understandable if changes were made to persuade people to switch how they save although I doubt now is the right time when many economic commentators are predicting a stock market crash.

Indeed.

We've switched from shares in light of current news. We're not spending frivolously either, time to hold for a rainy day emergency.

Doodledog

MayBee70

I think Labour need to communicate with the electorate better if they’re worrying people like me. Thank goodness for TRIP’s with Rory doing his idiots guides to everything!

Their comms are shocking, I agree. Given the way the press manipulate and jump on everything they do, they really need to be one step ahead, but they aren't.

Indeed this.

All taxes need to be examined, then a comprehensive plan, readjusting all taxes fairly. I've many ideas - nobody asks me.
Nor me. Maddening, isn't it?😀

escaped

Doodledog

MayBee70

I think Labour need to communicate with the electorate better if they’re worrying people like me. Thank goodness for TRIP’s with Rory doing his idiots guides to everything!

Their comms are shocking, I agree. Given the way the press manipulate and jump on everything they do, they really need to be one step ahead, but they aren't.

Indeed this.

We hardly hear anything about Matthew Doyle, Director of Communications, do we.

I remember Directors of Communications/Press Officers in the past being prominently in the news and quite memorable; Joe Haines, Bernard Ingham, Gus O'Donnell, Alistair Campbell etc

Why not air them here? It would broaden the discussion.

Reeves is going have to consider reinstating the Rooker Wise amendment that Sunak put on hold. It’s still on the statute book, I think.

Rooker Wise increases the tax personal allowance by the rate of general inflation (not the triple lock). If inflation hits 5% or more by autumn, which it could with Trump’s tariff wars, then everyone with only new State Pension is going to be in the tax net come April 2026.

nSP is going up to 230.25 in April 2025. A 5% increase on that would be £241.75 which is £12,571 pa against a personal tax allowance of £12,570. Only just in the net and HMRC are not going to come after 20p but anyone with a protected payment from SERPS or any other taxable income will be caught.

She would have to weigh up the HMRC cost of having to tax potentially a couple of miilion pensioners through Simple Assesment.

Else, she could reinstate the Age Allowance that George Osborne abolished but that would trigger arguments about wealthy pensioners getting a tax break over younger workers.

Thoughts?

I'm not sure that there's a good reason to differentiate by age when it comes to tax; but I also think that the thresholds are too low for everyone.

If taxes don't fund spending, what are they for? As things are, there is little incentive for people to work - it's one thing to do it because you know you are making a contribution to things like the NHS, defence, education etc, but when others get all of those things free, it fuels a lot of the discontent we are seeing. If the point of taxes is to redistribute wealth, there is plenty of scope for doing that for young and old alike.

growstuff

MayBee70 I understand your concerns. However, we just don't know what is going to happen. It's likely the amount which can be saved in ISAs will be reduced, not abolished altogether. Unless you're saving £20,000 a year (which I think is unlikely from what you've written) you have nothing to worry about. I doubt if you're a higher rate taxpayer either. As Silverbrooks has explained, you can have up to £40,000 in savings accounts without paying any tax. If you're approaching that amount, I think any advisor would tell you to spend some now. As explained, services will only increase in price, but you can't be taxed on money you've spent on a new car or boiler, etc.

A new car, you will pay a lot of tax on, VAT plus car taxes a boiler maybe VAT depending on any scheme. The thing you don’t pay much UK tax on are residential homes, holidays, ISAs, gifts and inheritance.

You don’t pay much UK tax on inheritance David? Do you think 40% as soon as the threshold is hit ‘not much’?

I would also take issue with you as regards tax on purchase of residential property - stamp duty is pretty punitive and will increase in April.

If taxes don't fund spending, what are they for?

Watch Richard Murphy:

Tax does not pay for government spending

www.youtube.com/watch?v=xnYhGD7xNig

Blog version:

www.taxresearch.org.uk/Blog/2024/04/29/tax-does-not-pay-for-government-spending/

but when others get all of those things free.

I understand what you are saying but we are all paying tax to a greater or lesser degree because everything we do is taxed directly or indirectly.

The things we think of as free, breathing, walking, sleeping etc aren’t really free as we need a coat, footwear and a bed. Even clean air comes at a cost e.g. ULEZ.

Even someone who is capable of work who choses not to work and is not paying income tax or council tax is buying goods and services which are taxed. That apparently feckless chap in the shop queue spending his benefits on cigarettes, alcohol and scratch cards is paying a lot of his benefit money back to the Govemment in taxes.

Or those who have retired from paid work.

Here I would point to the argument about some pensioners not needing the WFP to pay for energy. How terrible! They spent it on other things! It was never mandatory to spend it on fuel and, anyway, who knows what income is spent on once it’s in someone’s bank account. Nobody can prove whether I paid my energy bill from the WFP or my pensions.

From a Government perspective, spending WFP on other things actually yielded more tax as well as boosting the economy.

Spend the £200 on fuel and the government gets 5% VAT = £10.

Spend £200 on a warm winter coat and some boots (or a bed) and you’ll have paid 20% VAT = £40.

Spend £200 on 12.5% ABV wine for a Christmas party and you’’ll have paid £100 in alcohol duty and VAT. Example based on a bottle costing £8. £2.67 would have been alcohol duty and £1.33 VAT. Half the price of a bottle of wine is tax.

(Obviously, whatever money we pay to business adds to business profits and is also taxed but I am concentrating on what we as consumers spend.)

The people the government won’t have liked are those who put WFP into a (controversial at the moment) cash savings account which didn’t give rise to any tax liability. Even worse, those pesky people who gave WFP to a charity which was then able to claim 25% = £50 in Gift Aid from the Government. Worse still, those 40% taxpayers who could claim another £50 in higher rate tax relief. (£250 * 20%).

When numbers were being bandied around about how much withdrawing WFP would save the Government, the loss to business, charities and tax yield wasn’t factored in. The secondary legislation passed to effect the change merely states: A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, public or voluntary sectors is foreseen. But nobody bothered to cost those things.