Money expert Martin Lewis says cutting Cash ISA limits is a ‘mistake’ and it ‘won’t achieve’ what it sets out to.
Martin Lewis has issued a Cash ISA update and it’s not great news for people who want to keep making tax-free savings without investing.
The Money Saving Expert founder has taken to his latest episode of The Martin Lewis Podcast on BBC Sounds, Spotify and Apple Music to issue a rundown of what is expected to happen to Cash ISA limits when Chancellor Rachel Reeves makes a big speech on July 15.
Right now, there is a £20,000 annual ISA limit which allows savers to put that amount into a mixture of Cash or Stocks and Shares ISAs without paying tax on the interest, in any combination. So you could have all £20,000 in a Cash ISA or have £10,000 in Cash ISAs and £10,000 in Stocks and Shares ISAs.
The money man outlined that he expects that the £20,000 ISA limit will stay, but that the government will cut the Cash ISA limit specifically, which could drop as low as £4,000, in a bid to push more savers into investing instead, in an announcement on July 15.
Martin Lewis has issued a Cash ISA update (Image: ITVX)
Martin said: “OK so this has long been flagged. So the concept that we’re hearing and of course nothing is confirmed… the prediction is the current ISA limit of £20,000, that’s the total limit you can put into ISAs each year whether it’s stocks and shares ISAs or Cash ISAs, or a mix of the two, will remain the same.
“But the amount you can put into Cash ISAs will be cut. Some are suggesting it will be cut to as low as £4,000, which would be a radical cut.”
Martin went on record to stress that he is against the proposals and that he thinks it won’t work.
He added: “Now I am not in favour of this, and I am not in favour for a simple reason.
“The concept behind it we are told is that it would encourage people to invest and use investment ISAs rather than Cash ISAs. And I simply don’t agree that that will happen. It’s called nudge economics, I think it’s less nudge economics and more pee-people off economics.
“Because I think all it will do is get people to be very frustrated because putting money in cash savings is just so different to investing, it’s as different as apples and ducks. They are not the same thing, and people aren’t going to say ‘ooh, I have to pay tax on my savings now I’m going to go take a risk and invest it’, they’re a different asset class.”
Martin added: “I don’t think it will achieve the goal. What we need to do absolutely is encourage people to invest and we need more education on investing, we need more guidance, especially free guidance for people too, on how to invest, we need to educate people on how risk works and that risk isn’t always negative. But I think this is an issue.
“And I know some will say, look, £20,000 per tax year is a huge amount that only affects the wealthy and I accept that. But if this is an issue of redistribution and cutting costs and putting money into the Exchequer, then you would cut the entire ISA allowance, because ultimately the people who put £20,000 into investment ISAs each year are wealthier than those who put money into Cash ISAs each year.
“If this is just an attempt to skew the economics to push people into investing, I think all it will do is annoy many people and it won’t actually achieve the aim.”
Martin Lewis has told Chancellor Rachel Reeves he is not supportive of cutting Cash ISAs (Image: Getty)
Martin revealed he ran a poll on his social media accounts and the results were ‘gobsmacking’.
He said 80% of people said the limit should be kept at £20,000 or be increased.
Martin added: “I think it certainly shows the barriers and the potential political unpopularity the Labour party will face if it cuts the Cash ISA limit on July 15.
“With everything that’s going on at the moment and the number of U-turns that have happened it will be interesting to see if they decide to do that. Personally I think it’s a mistake. I can see a much stronger argument for cutting all of the ISA limit rather than just the Cash ISA limit.”
In an interview broadcast on BBC Newscast in May, the Chancellor was asked whether, in a few years’ time, someone would be able to put a whole £20,000 per year into an ISA, as they are able to do now.
Ms Reeves told the BBC: “First of all, very few people are able to save £20,000 a year … we still want people to be able to save and I’m certainly not going to reduce that limit.”
She added: “It’s really important that we support people to save, to achieve their aspirations.
“I’m not going to reduce the £20,000 ISA limit but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.”
