THE Chancellor has U-turned on proposed plans to make changes to cash Individual Savings Accounts (Isas), according to reports.
Rachel Reeves reportedly planned to cut the tax-free allowance on cash savings accounts next week, dropping the threshold from £20,000 for cash Isas.
The proposed changes were reportedly a bid from the Chancellor to encourage people to put money into stocks and shares instead, in an effort to boost the economy.
However, suggestions of the shift had raised concerns among banks, while consumer finance expert Martin Lewis claimed it could match up to other unpopular decisions taken by the Labour administration in the past year, including the cut to personal independence payments (Pip) and the winter fuel payment.
The UK Government has not ruled out changes to Isas in the future, the BBC reports.
According to the broadcaster, the UK Government still wants to encourage more investment in stocks and shares, but have ruled out altering the rules on cash Isas in the short term.
“Our ambition is to ensure people's hard-earned savings are delivering the best returns and driving more investment into the UK economy,” a Treasury spokesperson said.
Some plans are still expected to be outlined in the Chancellor's Mansion House speech to City leaders on Tuesday, with other proposals expected, like looser rules on regulated advice.
Following the news of Reeves's plans, some building societies reported seeing a jump in cash Isa applications following speculation that the limit could be cut.
Leeds Building Society said that during the week starting June 30, it saw a 47% increase in cash Isas being opened compared with the same period the week before.
SNP Economy spokesperson Dave Doogan MP said the decision to change the rules would be hugely unpopular as Scots would not want the Labour Government “dipping its fingers into their life savings”.
He said: “The Labour Party’s plan to introduce a new tax grab on people’s savings by slashing the cash ISA should be scrapped entirely - not just paused.
“Almost a third of Scots hold a cash Isa. These are ordinary people with small savings and, for many, they are a popular and safe way to put money aside - they do not want the Labour government dipping its fingers into their life savings.
“With the UK having one of the worst rates of personal savings in Europe, the UK government should be tackling the cost of living, boosting incomes and helping families to save - not introducing more unpopular measures that penalise those who try.
“Finally, there are better ways to encourage those who can and want to invest to do so - using advice and incentives in a ‘carrot not stick’ approach. Any consultation must involve voters and savers themselves, consumer champions and building societies not just lobbyists from big investment firms.”
The news of Reeves's U-turn comes after the UK economy contracted unexpectedly in May as the manufacturing sector suffered another steep decline in activity, according to official figures
The Office for National Statistics (ONS) said gross domestic product (GDP) contracted by 0.1% in May, following a 0.3% drop in April.
Most economists had expected slight growth of 0.1% in May.
