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There's a story in a scurrilous rag about the possibility of 'axing or significantly reducing' the cash ISA allowance (I think implicitly keeping the total ISA allowance constant). The idea seems to be to encourage more stock market investment by reducing the amount of cash savings that can be shielded from taxes.
I think even quite substantial cuts to the cash allowance would have relatively small impact, in terms of number of people affected. Based on September 2024 figures chart 5 the median annual contribution to cash ISAs is somewhere in the low thousands. The government could halve it and somewhere around 75% of existing ISA users would not experience any effect.
Whether it would unlock substantial share investment is harder to say. From the same chart somewhere around 20% of contributors are putting the maximum, or nearly the maximum, into cash ISAs; these are the people who would be forced to choose between share investments or paying more tax on their savings (or attempting tax evasion, I suppose). Since share ISAs are already easily available (and account for ~60% of the total value of ISAs, s1.3 of the link above) presumably we are looking at the most risk-averse section of the population; the theory that they will switch to share investments assumes that they will prefer uncertain stock markets to certain taxes.
The other point worth making is that (total) ISA allowances are in historical terms quite generous. At the start of the century they were £7000/year; today at £20000 they considerably higher than that in real terms (using the Bank of England's inflation calculator.) If the total allowance had kept track with inflation it would be nearer £13000 per year. So ISA users (of all kinds) have got a pretty good deal at present really.
I think even quite substantial cuts to the cash allowance would have relatively small impact, in terms of number of people affected. Based on September 2024 figures chart 5 the median annual contribution to cash ISAs is somewhere in the low thousands. The government could halve it and somewhere around 75% of existing ISA users would not experience any effect.
Whether it would unlock substantial share investment is harder to say. From the same chart somewhere around 20% of contributors are putting the maximum, or nearly the maximum, into cash ISAs; these are the people who would be forced to choose between share investments or paying more tax on their savings (or attempting tax evasion, I suppose). Since share ISAs are already easily available (and account for ~60% of the total value of ISAs, s1.3 of the link above) presumably we are looking at the most risk-averse section of the population; the theory that they will switch to share investments assumes that they will prefer uncertain stock markets to certain taxes.
The other point worth making is that (total) ISA allowances are in historical terms quite generous. At the start of the century they were £7000/year; today at £20000 they considerably higher than that in real terms (using the Bank of England's inflation calculator.) If the total allowance had kept track with inflation it would be nearer £13000 per year. So ISA users (of all kinds) have got a pretty good deal at present really.
