Rachel Reeves is expected to backtrack on plans to cut the tax-free allowance for cash ISAs, amid growing criticisms and building societies reporting a jump in new accounts being set up.
“Differing views” from within government and a longer consultation time with the financial sector have contributed to the pause in the policy, according to a report in the Financial Times.
The rule change had been intended as a mechanism to get money out of savings pots and circulating around British businesses.
Treasury officials had hoped that the move might nudge consumers towards higher yield stocks and shares ISAs, though industry figures have argued that the policy would more likely push consumers away from the savings products altogether.
But the Chancellor has faced a chorus of voices opposed to the change, with Skipton Building Society warning that the policy could drive up the cost of mortgages.
Ahead of the anticipated rule change – which Reeves had planned for her Mansion House speech on 15 July – there was a 45 per cent spike in the number of new cash ISA accounts, according to the building society.
Stark warnings
Around two thirds of ISAs are the cash variety and research by the Building Society Association (BSA) found that 18m Brits have a cash ISA.
According to that BSA data, the average savings balance is just below £13,400.
BSA chief Robin Fieth said in an open letter to the Chancellor this week that the savings product is “a cornerstone of personal savings for millions” and that the move to curb cash ISAs would be “unlikely to encourage people to invest”.
Signatories of the letter included bosses of Skipton, Yorkshire and Scottish Building Societies, alongside Nationwide chief Debbie Crosbie.
The building society leaders said: “The funds deposited in these accounts support lending, helping to keep mortgages and loans affordable and accessible.
“Any significant reductions to the cash ISA limits would make this funding more scarce which could have the knock-on effect of making loans to households and businesses more expensive and harder to come by.
“This would undermine efforts to stimulate economic growth, including the government’s commitment to delivering 1.5 million new homes.”
