Treasury ministers are sounding out City bosses on cutting the £20,000 tax-free allowance on popular cashIsas, as they consider how to incentivise investment in UK stocks and revive the London Stock Exchange.
The City minister, Emma Reynolds, called a meeting with senior executives from six of the UK’s largest banks and building societies before what could be one of the biggestshake-ups of individual savings accounts (Isas)since their creation in 1999 under the then Labour chancellor, Gordon Brown.
The meeting – which included bosses from NatWest, Lloyds, HSBC, Barclays, Nationwide and TSB – was held at the London offices of the lobby group UK Finance on Thursday, and is part of a series of government round tables taking place before a consultation on Isa market reforms.
Isas have become a popular way to save, with the two main products providing tax-free wrappers for either cash, or stock, investments.Cash Isasdraw the largest number of savers, though, and more than 18 million people hold £300bn in those accounts.
Investment companies say scaling back tax breaks on cash savings would encourage a shift into stock market based investments and generate renewed interest in UK equities. It comes amid growing concerns that the London Stock Exchangehas been falling out of favourand losing out to US rivals, with companies choosing to take their IPOs stateside or shift their primary listings to New York.
Supporters of Isa reforms also argue that putting money into the stock market could generate much higher returns for savers than cash.
It is understood that the government is considering all of its options, including a potential revival ofthe “British Isa”proposed by the former Conservative chancellor Jeremy Hunt. The product would have allowed consumers to plough up to £5,000 into UK businesses, including stocks and debt, without having to pay capital gains tax on money made on those investments.
Banks and building societies have been less enthusiastic about potential changes, since their business models rely on savings deposits to help fund loans to other customers.
UK Finance has cautioned against any changes. Its Plan for Growth report released in March urged the government to “retain the annual tax-free cash Isa allowance of £20,000, to avoid restricting consumers’ options”.
Many consumers with vivid memories of stock market crises, including the 2008 banking crash, have also been wary of putting money into riskier assets because of fears of losses. However, the Treasury is broadly pushing for more risk taking across the City to help stimulate growth, with a consultation on Isa changes due to take place as early as this summer.
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The chancellor, Rachel Reeves, said: “It’s really important that we support people to save, to achieve their aspirations. At the moment, there is a £20,000 limit on what you can put into either cash or equities, but we want to get that balance right.
“I do want to create a more of a culture in the UK of retail investing, like what you have in the US to earn better returns to savers and to support the ambition to grow the economy, creating good jobs right across the UK.”
UK Finance declined to comment on the meeting, which wasfirst reported by the Financial Times.