Cash Isas: to scrap, or not to scrap?

Targeting tax-free savings could prove the blunder that ends the chancellor's political career

the words 'Cash Isa' spelt out on a Scrabble board
'It is high time the country's tax system encouraged more economically productive behaviour'
(Image credit: Andrew Paterson / Alamy Stock Photo)

Untarnished by misselling scandals, simple to understand and easy to self-administrate, Isas are "one of Britain's rare financial success stories", said Sam Brodbeck in The Daily Telegraph. But the investment industry has been "leaning on the Chancellor" to enact a major shake-up of these tax-free individual savings accounts.

The hope is that she will restrict or eliminate the tax break on cash Isas to "push more people into investing". At present, Britons have a free hand when allocating their £20,000 tax-free allowance between stocks-and-shares and cash Isas – and around two-thirds of the country's 22 million Isa holders choose the cash variety alone, said Jamie John in the FT. Reformers claim this not only reduces their own returns, but is a drag on UK growth. "The state should not be giving a tax break for us all to park our money in cash," argues Andy Briggs of Phoenix Group. Around £300 billion is currently stashed away doing nothing.

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Although some kind of cash element is sensible – to build a household safety net – it doesn't "need to be anywhere near as generous as £20,000 a year", said Patrick Jenkins in the FT. "Something like a £5,000 upper limit for a cash Isa, and an additional £20,000 in stocks and shares, could spur a powerful revival in the UK's moribund equities culture." The culture of stock market investing in the US has enriched households across the country. We need to follow suit. "It is high time the country's tax system encouraged more economically productive behaviour" – Reeves should grasp the nettle.