Reeves doesn’t deny plan to slash cash ISA limit

Barleyfields

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.

This.

Oh dear.

Should I not have bought that new-to-me car?
Should have put that money into an ISA instead ☹

Norah

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?

No, I don’t think that’s the case Norah, it depends on every individual’s essential commitments. What I’m saying is that there is no way that somebody on an average income can save over two thirds of it every year into an ISA, unless they already own a house and don’t have a car, and have minimal other outgoings.

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.

This.

Dear me. Nobody must be able to put more into an ISA than ‘the average saver’ can afford to save. I have already said that saving £20k pa does not enable the already rich to get richer - unless of course you decide that being able to save £20k is the mark of being rich. I assure you, it is not. It is often the mark of living comparatively frugally and spending only on real necessities.

I reject your interpretation Barleyfields, iSAs were designed to help people on low and average incomes save, so we will have to agree to differ on this

Barleyfields

Dear me. Nobody must be able to put more into an ISA than ‘the average saver’ can afford to save. I have already said that saving £20k pa does not enable the already rich to get richer - unless of course you decide that being able to save £20k is the mark of being rich. I assure you, it is not. It is often the mark of living comparatively frugally and spending only on real necessities.

Being able to save £20,000 every year is the mark of somebody with much more than the average disposable income. Some people probably would call that rich.

Your idea that it's the mark of somebody living frugally is just ludicrous. (Just goes to show how out of touch some people are.)

Barleyfields

Dear me. Nobody must be able to put more into an ISA than ‘the average saver’ can afford to save. I have already said that saving £20k pa does not enable the already rich to get richer - unless of course you decide that being able to save £20k is the mark of being rich. I assure you, it is not. It is often the mark of living comparatively frugally and spending only on real necessities.

The surplus sum of £20,000 that some people are able to put aside into a cash ISA each year is a mere pittance to the very wealthy. I doubt they would even bother with such inconsequential trifles.

Whilst we could never have saved the maximum £40,000 pa into cash ISAs, I do not resent anyone who has as it seems to be a sensible thing to do, to save as much as possible especially for retirement when income might drop.

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.

You contradict yourself. Of course couple saving £40k a year are almost certainly in one of the higher tax bands ie they're rich!!!!

Allira

Barleyfields

Dear me. Nobody must be able to put more into an ISA than ‘the average saver’ can afford to save. I have already said that saving £20k pa does not enable the already rich to get richer - unless of course you decide that being able to save £20k is the mark of being rich. I assure you, it is not. It is often the mark of living comparatively frugally and spending only on real necessities.

The surplus sum of £20,000 that some people are able to put aside into a cash ISA each year is a mere pittance to the very wealthy. I doubt they would even bother with such inconsequential trifles.

Whilst we could never have saved the maximum £40,000 pa into cash ISAs, I do not resent anyone who has as it seems to be a sensible thing to do, to save as much as possible especially for retirement when income might drop.

Of course it's sensible to save, but that doesn't mean that the government should subsidise the savings interest of those who already have more assets than the average person. The fact is that most people do not have £20,000 (never mind £40,000) a year to save.

The point is there is no obligation to save the full amount as there is no minimum amount.
But on occasion, someone might have an influx of cash for some reason; a small inheritance, a bonus at work, even a lottery win which exceed the proposed low limit.

It just seems to be another attack on ordinary people.

Allira

Oh dear.

Should I not have bought that new-to-me car?
Should have put that money into an ISA instead ☹

You were probably very wise to buy a new car. If you had have waited, it would almost certainly cost you more and the interest you would have received (taxed or not) would not have covered the increase.

You are twisting my words growstuff. I said being able to save £20k is often the mark of someone living frugally and spending only on real necessities. They may or may not earn more than the average income. Everyone’s personal living expenses and spending choices are different. The average disposable income depends not only on actual income, but on those expenses and choices. People on the same salaries can have vastly different disposable incomes.

Allira

The point is there is no obligation to save the full amount as there is no minimum amount.
But on occasion, someone might have an influx of cash for some reason; a small inheritance, a bonus at work, even a lottery win which exceed the proposed low limit.

It just seems to be another attack on ordinary people.

But it's not an attack on ordinary people. Ordinary people will save a fraction of that every year. Ordinary people can earn £1000 in interest every year without paying tax anyway.

I don’t necessarily agree that ISAs were aimed exclusively at smaller savers, only to encourage more people to save which is not the same thing.

This was Gordon Brown’s Budget Statement in 1997:

Half the adult population of our country hardly saves at all. So, in order to encourage personal savings, the Government will, as promised, introduce from 1999 individual savings accounts, extending the principle of TESSAs and PEPs and continuing to offer favourable tax reliefs for saving. Through the new individual savings account, we intend to encourage the habit of saving among people who have never saved before.

This was a very cross Nick Gibb, former Conservative MP for Bognor Regis and Littlehampton, speaking in debate on 1 November 1998.

The new ISA, with its initial £50,000 lifetime limit, penalised the thrifty and the self-employed whose savings had been built up in lieu of a pension.

There was outcry at the £50,000 limit on transferring from PEPS into ISAs. There was outcry at the retrospective taxation that was inherent in the new regime as it was introduced.

… and so on and so forth

I don’t know what the outcome of this was and have no recollection of there being a lifetime limit. It may be that plans to limit the amount were defeated.

I wonder who qualifies as ‘an ordinary person’? It seems as hypothetical as Starmer’s ‘working people’, a moveable feast if ever there was one.

growstuff

Allira

Barleyfields

Dear me. Nobody must be able to put more into an ISA than ‘the average saver’ can afford to save. I have already said that saving £20k pa does not enable the already rich to get richer - unless of course you decide that being able to save £20k is the mark of being rich. I assure you, it is not. It is often the mark of living comparatively frugally and spending only on real necessities.

The surplus sum of £20,000 that some people are able to put aside into a cash ISA each year is a mere pittance to the very wealthy. I doubt they would even bother with such inconsequential trifles.

Whilst we could never have saved the maximum £40,000 pa into cash ISAs, I do not resent anyone who has as it seems to be a sensible thing to do, to save as much as possible especially for retirement when income might drop.

Of course it's sensible to save, but that doesn't mean that the government should subsidise the savings interest of those who already have more assets than the average person. The fact is that most people do not have £20,000 (never mind £40,000) a year to save.

The amount gained in tax is so minimal as to be insignificant.
The estimate is £5bn. It sounds a lot but it is minuscule compared to total Government spending.

There is more than one motive behind this. Ms Reeves obviously wants us to spend, spend, spend to boost the economy and fill Government coffers in other ways.

growstuff

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.

You contradict yourself. Of course couple saving £40k a year are almost certainly in one of the higher tax bands ie they're rich!!!!

Please define rich.

I wouldn’t be surprised to see an incentive to save in stocks and shares ISAs. She wants to keep the City happy. Nobody with sense would be putting a lot into equities now. But we all know Reeves doesn’t think.

If Reeves is going to tinker around with cash ISAs then she also needs to take a good, hard look at Premium Bonds.

Introduced in 1956 as a way to encourage post war savings and support the economy (by loaning the Government money) there is no need for them and they are expensive.

The Government pays 5 billion a year in interest as prize money but the vast majority of bonds win absolutely nothing. The minimum investment is £25 which gives someone 25 chances a month.

The odds of any £25 holding winning a million pounds are one in 2.6 billion. You may as well stand in the middle of Birmingham or Manchester and yell, It’ll be me!!!

Each month around 600,000 bonds do win something, usually £25, but £129 billion bonds win absolutely nothing. (MSE numbers from 2024).

Compare someone who invests in cash ISAs because they need guaranteed income. £50,000, possibly accumulated over many years,now paying 5% will yield £2,500 from a bank or building society - enough to pay council tax for most and a few other bills.

Contrast, someone with PBs who can afford have £50,000 of cash sitting there with no guarantee of a return. But the Government still has to pay interest on the total invested. It is just borrowing money from one person and paying the interest to a machine-selected few. Moreover, couples can have £100,000 sitting there. Of course, some will win a few prizes but there is no guarantee.

I would have no objection to having say a cap of £100,000 on cash ISAs but if Reeves is going to argue that cash ISAs are dead money (I think it was Emma Reynolds who did argue this) then PBs are even deader and a ridiculously unfair way of distributing income.

Of course, it would have to physically repay the 130 billion but could fund it with a gilt issue paying 4% that others would buy. Gilts are a safe bet in these dangerous times. Many people are already moving their money into them.

distributing income ... distributing interest.

I couldn’t agree more. I cashed in my premium bonds long ago. They are no more an investment than buying a lottery ticket, though unlike a lottery ticket you can get your purchase price back.

Norah

growstuff

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.

You contradict yourself. Of course couple saving £40k a year are almost certainly in one of the higher tax bands ie they're rich!!!!

Please define rich.

Is rich the same as wealthy?

A couple with several dependent children and a mortgage could have the same income as a couple with no dependent children but not have a penny to spare to put in ISAs, whereas the childless couple might have a large amount of disposable income.

It's all relative

Allira

Norah

growstuff

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.

You contradict yourself. Of course couple saving £40k a year are almost certainly in one of the higher tax bands ie they're rich!!!!

Please define rich.

Is rich the same as wealthy?

A couple with several dependent children and a mortgage could have the same income as a couple with no dependent children but not have a penny to spare to put in ISAs, whereas the childless couple might have a large amount of disposable income.

It's all relative

Indeed.

Relative and can't be defined.

Perhaps some are saving in ISAs for their children, the ones we hear of who can't save a deposit for whatever reason. Or their grandchildren University costs. People have different reasons to save.

I don't find it helpful to pick apart why people live as they do.

However, pondering RR plans? Quite interesting.

I agree, it’s not at all helpful. People earning the same money make different choices - some end up with little left to save, for others saving is a priority.

Reeves is a dictator, as is Starmer. She wants to make people invest in shares. She will have a rude awakening. If they wanted to take on that risk, especially at present, they would already be doing so. Better to risk having to pay some tax on interest than lose your investment.