Budget reaction - Chris Egmore

The Chancellor’s decision to reverse the proposed restrictions on investing in cash ISAs will be welcomed by those aged under 65 who want to shelter their cash holdings from tax – and who were facing an annual investment limit of £12,000 under the initial proposals.

Aside from the potential difficulties in making the restriction work, it could have had a potential knock-on effect on banks’ liquidity, which would have had a knock-on effect on mortgage availability.

Also, there is a welcome adjustment to the penalty regime for lifetime ISAs, which can see investors lose as much as 25% of their investment under certain circumstances.

Less good news is the slightly under-the-radar increase in the income tax rates paid on savings.  A 2% supplement on rates was already on the table from April 2027; this will now be doubled to 4%, meaning that basic rate taxpayers will now pay 24% on their savings income, while higher rate taxpayers will pay 44% (and additional rate taxpayers 49%).

The hike in rates could be a win:win for the Chancellor.  If savers move their cash investments into stocks and shares investments to benefit from lower tax rates, the wider economy will benefit; if they leave them in cash and swallow the higher tax rates, the additional tax revenue will be useful.