Government puts plans to reduce tax-free allowance on hold

The chancellor has decided to postpone any immediate changes to cash Individual Savings Accounts (Isas), according to the BBC. Currently, savers can invest up to £20,000 in Isas to shield their returns from taxes. There were discussions about reducing the tax-free cash savings allowance to encourage more investment in stocks and shares and stimulate the economy. However, due to strong opposition from banks, building societies, and consumer advocates, these plans have been put on hold.

Although changes are not off the table for the future, the government's current focus is on promoting investment in stocks and shares without altering the rules for cash Isas. A Treasury spokesperson stated, \"Our goal is to ensure that people's savings generate optimal returns and drive more investment into the UK economy.\" The chancellor is expected to outline some plans during a speech to City leaders, which may include educational initiatives to promote investment and relaxed regulations on financial advice.

The idea of making cash Isas less appealing has faced backlash, especially from older savers who are hesitant to take on more investment risks. The Treasury received mixed feedback from the industry regarding potential Isa reforms. While investment firms supporting stocks and shares Isas believe lowering the cash Isa limit would encourage investment, banks and building societies, major players in the cash Isa market, oppose the change. They argue that reducing the cash Isa limit could discourage saving and lead to higher taxes on non-Isa accounts. Building societies also highlight that it would reduce the funds available for lending through mortgages and other loans.

The Treasury is anticipated to continue discussions with banks, building societies, and investment companies to explore reform options. Harriet Guevara, chief savings officer at Nottingham Building Society, emphasized the importance of maintaining the full allowance and welcomed further consultations with the industry to avoid hasty reforms that could discourage saving.

According to the source: BBC.