Victory for the Mail and This is Money as Healey axes Reeves’ cash Isa raid

Chancellor John Healey has abandoned ‘car crash’ plans to cut the cash Isa allowance for under-65s in a major victory for the Daily Mail and This is Money. 

The amount that can be funnelled into a tax-free cash Isa every year will now stay at £20,000 instead of being slashed to £12,000 from April for savers under the age of 65.

Savers who do not want to risk their cash on the stock market could breathe a sigh of relief as Rachel Reeves’ ill-thought-out plans were scrapped.

We had campaigned for a reversal to the planned cut since it was announced last autumn after unhappy readers wrote to us in droves.

Just two weeks ago, we issued a final plea as part of our Hands Off Our Cash Isas campaign for the Chancellor to reverse the punitive savings raid.

And Mr Healey on Wednesday announced he will not go ahead with the changes in an embarrassing moment for Ms Reeves. He said the limit ‘will stay at £20,000 tax-free for people of all ages’.

That means all taxpayers will still have a £20,000 allowance which they can save into tax-free Isas every year and can split however they choose.

However, there was a sting in the tail as the Chancellor upped savings interest tax rates by a further two percentage points, to 24 per cent, 44 per cent and 40 per cent from April 

Interest earned on savings in cash Isas is tax-free, and stocks and shares Isa investments face no capital gains or dividend taxes. But Ms Reeves’ plans would have piled on costs and red tape, adding complexity for no real gain.

The ISA is among the most popular financial products in the UK – more than 22 million adults have one – and part of their appeal is their simplicity.

The changes would have prevented under-65s from moving their savings between cash Isas and stocks and shares Isas, alongside breaking the long-term pledge that Isas are tax-free.

And those who held cash for legitimate reasons in investment Isas would be hit with a 22 per cent charge on interest.

Experts warned that adding complexity to Isas could even discourage savers from switching to investments.

Dame Meg Hillier, the MP serving as chairman of the Treasury committee, said it was a ‘victory for common sense and a well-earned victory of the Mail’s Hands Off Our Cash Isas campaign’.

She added: ‘These over-complicated changes would have caused confusion for customers and led to problems for building societies who rely upon the money held in cash Isas.’

Tom Selby, director of public policy at AJ Bell, said: ‘Rachel Reeves’ Isa reforms were a car crash, lamented by most of the retail investment industry. It makes sense the cash ISA cut has been unceremoniously ditched.’

Rachel Springall, of rate scrutineer MoneyfactsCompare, said the decision brings ‘relief’ but added that the time and cost spent by providers preparing for the change ‘is such a waste’.

Lawrence Chan, head of Nottingham Building Society, called the reversal ‘great news for savers who value certainty and flexibility’.

Eric Leenders, of UK Finance, said the group was ‘pleased’ as cash Isas ‘play an important role’ helping people save for the future.

But city firms were disappointed after lobbying Ms Reeves to scale back tax breaks on cash to boost investment in the stock market.

Michael Healy, chief executive of IG Consumer, said: ‘The Chancellor has squandered a golden opportunity to help British households build long-term wealth.’

However, many said restricting savings is not the right way to push a thriving investment culture. Claire Exley, of JP Morgan’s investment arm, said the move would have risked making the Isa system ‘too hard to understand for the average consumer’.

Mr Healey has said he will instead work with the sector to create a new ‘starter Isa’ to reward first-time investors.