Reeves doesn’t deny plan to slash cash ISA limit

Excellent and thought-provoking post Silverbrooks. Indeed, nobody bothered.

And I understand what you are saying, but that is about circulating money. If tax doesn’t pay for spending, whether it is purchase tax or income tax, what is it for?

Also, if people are spending money that someone else has earned, who is paying the tax? I would argue that the one who earns it, in the same way that giving someone a voucher to buy a birthday present still means you have bought the present. The act of shopping is not the same as the act of paying tax.

If taxes don’t fund spending, what does? If we need to raise money (as a country) how can we do it if not by taxation?

The government can issue or borrow money, but if there were no taxation to back money creation and repay borrowing the result is pretty obvious.

I don’t understand your reference to spending money that someone else has earned. Someone who earns money pays tax on their earnings over and above the personal allowance. Whoever spends money (such as the recipient of a gift voucher) will pay VAT on the purchase price unless it’s an exempt or zero-rated item.

.

My point, regardless of the economic theories which are off topic for this thread (sorry), is that we do need to raise money, and arguably more now than for a very long time. The country has had 14 years of cuts, fewer people are in work than we need, welfare bills are high, and the global situation is worrying to say the least.

The money has to come from somewhere. Low earners and pensioners are taxed on anything over £12500. If it is ok to do that (which doesn't leave a lot for people on low incomes to save anything) why should a better off couple be able to get interest on £40k a year tax-free? If they can afford to save £40k, there is no reason at all why they shouldn't, but it is no more unreasonable to expect the interest to be taxed than it is to expect someone on a few pounds over the new SP to pay tax.

The couple saving £40k pa may well both be paying income tax at 40% or 45%, have zero personal allowance and zero allowance for interest. And they will probably be spending a fair bit and thus be paying a lot of indirect taxes. Should they not be allowed to put money into ISAs and get some tax-free interest? It won’t amount to very much.

I think whatever level of income tax people pay, they should be only able to put money into ISAs to the same amount that the average saver can afford, and pay interest on any savings above that level. I think we need to be clear that the existing amount enables the already rich to get richer, and benefits the average person only marginally in comparison. The scheme was originally set up to benefit people who could not afford to save large sums, and we have been the beneficiaries, me included, of the increased ISA limit in the last few years. It’s time it changed back to reflect the original purpose.

To the rich, putting £20k pa into an ISA isn’t a big deal, it’s peanuts. And that’s all they can put in in any one year. They will have other, much bigger investments which will attract tax either yearly or on disposal. They have to have been saving into an ISA for many years for the balance and interest to have reached dizzying heights. The rich will always get richer. I don’t see why we should level down and that wouldn’t be the reasoning behind the rumoured lowering of the annual allowance for cash ISAs. Would you also advocate a much lower premium bonds allowance (though that of course is borrowing by the government) to the level that poorer people could afford? Or richer people being taxed on winnings?

Exactly Barleyfields, so let’s close the loop so they can no longer invest £20k tax free.

Casdon

I think whatever level of income tax people pay, they should be only able to put money into ISAs to the same amount that the average saver can afford, and pay interest on any savings above that level. I think we need to be clear that the existing amount enables the already rich to get richer, and benefits the average person only marginally in comparison. The scheme was originally set up to benefit people who could not afford to save large sums, and we have been the beneficiaries, me included, of the increased ISA limit in the last few years. It’s time it changed back to reflect the original purpose.

What would be the present limit based on the rate of inflation since ISAs were introduced in 1999? The limit was £3,000 for cash ISAs and £4,000 for stocks and shares ISAs, replacing TESSAs and PEPs.

£3,000 in 1999 = £5,633.10 pa today using the Consumer Price Index (CPI)

So £4,000 would seem to be a bit mean.

£3000 would now be £5633 according to the Inflation Calculator Allira.

Barleyfields

The couple saving £40k pa may well both be paying income tax at 40% or 45%, have zero personal allowance and zero allowance for interest. And they will probably be spending a fair bit and thus be paying a lot of indirect taxes. Should they not be allowed to put money into ISAs and get some tax-free interest? It won’t amount to very much.

I'm not saying anyone should be 'allowed' to do anything - just that if we need to raise money then taking some from those who can afford to save at that rate is fairer than taking it from those on minimum wage and pensions.

As I've said, I would prefer to see a cap on the total that can be held tax free - £100k maybe? That would be better than an annual cap IMO. Someone approaching retirement could put away as much as they could afford (up to the £20k limit) and leave it as a rainy day fund, whilst small savers, for whom the scheme was intended, could save smaller amounts for longer to reach the cap.

Good question.

The increase to £15,000 in 2014/15 was effectively a merging of the two schemes to allow more flexibility in how much people could put into cash and stocks and shares.

Using the Bank of England CPI calculator - £7000 in 1999 would be £13,144 now but there is a disclaimer comparisons of prices further back in time and over long periods are less accurate than comparisons over short periods in recent years.

If the Government wants to encourage investment in stocks and shares they might unmerge the two, £10,000 in each say.

Casdon

£3000 would now be £5633 according to the Inflation Calculator Allira.

X post

And 10p - don't forget the 10p Casdon!

Casdon

Exactly Barleyfields, so let’s close the loop so they can no longer invest £20k tax free.

Why, Casdon, if they are already contributing a lot to the economy in other taxes? That really is punishment for the sake of it, Labour hatred of the rich. My experience of what we might term rich people is that they live quite frugally, not spending on the holidays, new kitchens, furniture, cars, takeaways etc that less well off people spend on. They conserve and invest their money, put an extra jumper on rather than the heating and many give generously to charities and their community in cash and time.

The last government increased the comparative wealth of richer people by raising the investment limit Barleyfields. I’m cutting my own nose off to spite my face in saying this, but to continue to do that is against the ethos of this government, which is to create a more equal society, and I’m prepared to accept that richer people have to pay more for that to be achieved. That’s just the way it is, you can rail at what you consider the unfairness, but it’s not going to make any difference.

I’m not railing against anything. I just find it amazing that anyone would complain about someone being able to save £20k a year tax free. Many fritter away that sort of money, and more, on the sort of things I mentioned above. I happen to be one of those who doesn’t, and never has, though with IHT in view my spending habits are changing. I might even change my ancient car. Things I can enjoy now but whose probate value is low are in my sights.

Barleyfields

I’m not railing against anything. I just find it amazing that anyone would complain about someone being able to save £20k a year tax free. Many fritter away that sort of money, and more, on the sort of things I mentioned above. I happen to be one of those who doesn’t, and never has, though with IHT in view my spending habits are changing. I might even change my ancient car. Things I can enjoy now but whose probate value is low are in my sights.

The fact remains that most of the population spend their income over that year, they have probably got money in a pension scheme but that isn’t available to invest in other things.

Most borrow to buy a house if they can, apart from day to day spending holidays and cars are next on the list, only when the mortgage is paid off is there cash to spare. In reality most in that situation are 60 plus - us.

Takeaways, coffees, new smartphones, nails, beautician, clothes, in addition to the holidays and cars …

My experience of what we might term rich people is that they live quite frugally, not spending on the holidays, new kitchens, furniture, cars, takeaways etc that less well off people spend on. They conserve and invest their money, put an extra jumper on rather than the heating and many give generously to charities and their community in cash and time.

Precisely.

Nothing to support not allowing someone being able to save £20k a year tax free. Income taxes have been paid. Money is being saved for a rainy day or whatever needs arise, this is not a problem.

There is though.
‘Based on data from the Annual Survey for Hours and Earnings (ASHE) by the Office for National Statistics (ONS), the gross average salary in the UK is £2,886 per month (or £34,632 annually). After taxes, the net average monthly earnings are £2,297 (or £27,573) in the UK.23 Sept 2024’.
Unless it’s suggested that on the average salary people could live on £7573 a year and save £20,000 into an ISA, only the wealthy can do so.

David49

Barleyfields

I’m not railing against anything. I just find it amazing that anyone would complain about someone being able to save £20k a year tax free. Many fritter away that sort of money, and more, on the sort of things I mentioned above. I happen to be one of those who doesn’t, and never has, though with IHT in view my spending habits are changing. I might even change my ancient car. Things I can enjoy now but whose probate value is low are in my sights.

The fact remains that most of the population spend their income over that year, they have probably got money in a pension scheme but that isn’t available to invest in other things.

Most borrow to buy a house if they can, apart from day to day spending holidays and cars are next on the list, only when the mortgage is paid off is there cash to spare. In reality most in that situation are 60 plus - us.

I disagree.

List of unnecessary items people spend on is long. Of course people may spend as they wish, but people should be encouraged to save. If people desire Holidays, nails, salon visits, takeaways, meals out, pub visits, coffees at garden centres, phones, new kitchens, new gadgets, excess clothing - they have less to save.

It’s not the case that someone who can afford to save £20k is wealthy. They have above average earnings - is that a crime? Many study and work very long hours in stressful jobs to have a salary which is above average. There is no good reason to penalise them for doing so by limiting the amount they can save, tax free. They are already paying far more income tax than someone on an average salary.

Casdon

There is though.
‘Based on data from the Annual Survey for Hours and Earnings (ASHE) by the Office for National Statistics (ONS), the gross average salary in the UK is £2,886 per month (or £34,632 annually). After taxes, the net average monthly earnings are £2,297 (or £27,573) in the UK.23 Sept 2024’.
Unless it’s suggested that on the average salary people could live on £7573 a year and save £20,000 into an ISA, only the wealthy can do so.

Please define wealthy.

Anyone who earns over average is by definition wealthy?

Exactly, Norah. Add up the unnecessary expenditure and some would be horrified.