In her autumn Budget, Chancellor Rachel Reeves said that from now on there would only be one ‘fiscal event’ (i.e. Budget) each year, and so most commentators initially viewed this month’s Spring Statement as an opportunity to ‘tidy up’ some loose ends and to concentrate on the public spending review.
However, events have somewhat overtaken that laudable aim. The economy continues to demonstrate only weak growth, at the same time as being battered by a series of external events. Tariffs were always going to be under consideration under a Trump presidency, but few could have predicted the seismic changes that the new US regime would bring about in two short months – not least the realisation that Europe is going to have to play a much bigger role in defending itself, with all of the inevitable economic implications.
So the Spring Statement has assumed a greater importance than we assumed. As a result we are seeing all sorts of predictions about what the Chancellor might do to stimulate growth in order to provide the resources to fund the ever-competing demands on the public purse. So in the personal finance realm, what might we reasonably expect?
Some parts of the media have embarked on rather unlikely speculation: for example, I have read one prediction that the personal income tax allowance for pensioners might be raised towards a target of £20,000. Given that Mrs Reeves has already extended the freeze on personal tax allowances by two years until 2028, it seems unlikely that she will unfreeze them for one section of the population, not just because the financial headroom required to balance the books is already paper-thin, but also because such a move would be politically uncomfortable.
A rather more plausible projection is that the annual allowance for cash ISAs could be reduced from its current £20,000 level to perhaps as low as £4,000. The reasoning behind this is the need to encourage savers to invest in British companies rather than holding large amounts in cash, and some have suggested that this move might be accompanied by the creation of something akin to the much-mooted ‘British ISA’.
However attractive this theory might seem, there are some real problems in achieving this. The first is practicality: how do you ensure that money is indeed being invested into British firms? You can’t simply insist that investment is made in FTSE companies, as many of these are neither genuinely British nor operating wholly or even mainly in the British economy.
Another big issue is that banks and building societies use the money invested in cash ISAs to fund mortgage lending. Turn off that tap, and the danger is that mortgages become more expensive, hardly a move designed to make the property market accessible to new entrants.
On top of that, many of those holding cash ISAs do so because they are attracted by their inherent flexibility. Unlike stock and shares ISAs, which should be viewed as long-term investments, cash can be accessed easily and is not subject to short-term volatility in the market. The many people who hold their emergency/contingency funds in cash ISAs are unlikely to be attracted by investing in the stock market.
So although the idea of restricting cash ISAs might seem reasonable at first glance, there are significant issues, and there is no guarantee that doing so will encourage people to invest that money directly in helping the British economy to grow. The danger is that such a move would simply turn people off ISAs altogether – and given how successful they have been in getting British people to save, that could be very damaging indeed.