Cutting cash Isa limit will not boost stock market, MPs warn Rachel Reeves

"Cutting the annual cash Isa allowance will not encourage many savers to switch to shares but could push up mortgage costs, MPs have warned the chancellor. Adults can put up to 20,000 a year in a tax-free Isa and spread the money between cash and stock market investments as they choose. In the 2023-24 tax year, 66% of all contributions went into cash savings."

"Earlier this year, Rachel Reeves paused plans to limit the cash Isa allowance but in the run-up to next month's budget there has been renewed speculation that it could be reduced to 10,000 in an attempt to promote growth. The Commons Treasury committee said on Saturday that the chancellor should not cut the cash Isa allowance, arguing this was unlikely to encourage people to put their money into the stock market."

"In a report based on hearings with experts, the committee quoted Martin Lewis, the founder of the MoneySavingExpert website, who said this concept that, if you stop people saving in cash, they are going to put money in stocks and shares is false. For people to invest in stocks and shares, you need a cultural change. The committee heard from building society bosses who warned reducing the cash Isa allowance would have negative effects on homebuyers."

Cutting the annual cash Isa allowance will not encourage many savers to switch to shares and could increase mortgage costs. Adults can put up to 20,000 a year into tax-free Isas, and in 2023-24 sixty-six percent of contributions went into cash savings. Speculation about reducing the cash limit to 10,000 before the budget led the Commons Treasury Committee to advise against a cut. The committee quoted Martin Lewis that stopping cash saving will not automatically send people into stocks and shares because investing requires a cultural change. Building societies warned that lower deposit inflows would reduce mortgage funding, weaken competition and could push up rates, so MPs urged better financial education to help people make informed investment decisions.

Read at www.theguardian.com