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UK ministers are considering cutting the £20,000 tax-free cash Isa allowance but debating with City of London figures the level at which it should be capped, according to two people familiar with the situation.
In a meeting with senior executives from banks including HSBC, Barclays and NatWest on Thursday, City minister Emma Reynolds discussed reforming the Isa market as part of a broader attempt to help funnel more money into London-listed stocks.
People familiar with the situation told the Financial Times that the discussion touched on reducing the tax-free cash allowance — a move for which some City groups have strongly lobbied in recent months, seeing it as a way to attract money into equity funds and domestic shares.
“It’s still a decision they’re [the Treasury] grappling with as part of a wider discussion on how do you best encourage people to save for the future,” one person familiar with the meeting said.
A separate government figure said the expectation was that the government would cut the threshold for tax-free cash Isas.
The FT reported at the weekend that the government was preparing to launch a review of the market, with a view to encouraging savers to move from cash to investments and boost London’s ailing stock market.
Under the current regime, individuals can hold up to £20,000 a year in a mix of cash and investments free of income and capital gains tax. There are four main Isa products, of which cash is by far the most popular, with £300bn of savings.
Any move to cut the tax-free cash threshold would mark one of the biggest shake-ups in the UK’s savings markets since Isas were created by then Labour chancellor Gordon Brown in 1999.
Savers poured £4.2bn into cash Isas in March, up by almost one-third compared with the previous year, according to investment site Hargreaves Lansdown.
The meeting with lenders — which also included Lloyds Banking Group, Nationwide and TSB — is one of a series between the Treasury and parts of the City, ranging from banks to industry bodies, on reforming the Isa market.
The Treasury had scheduled another meeting on Monday with chief executives of retail investment sites, including Dan Olley from Hargreaves Lansdown and Michael Summersgill from AJ Bell, according to people familiar with the plans.
The discussion was expected to focus on cash and investing, as well as investing in UK assets, one of the people said.
In a statement to the FT after the meeting, chancellor Rachel Reeves said: “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.”
She added that she wanted to create “more of a culture in the UK of retail investing” in order to “earn better returns to savers and to support the ambition to grow the economy, creating good jobs right across the UK”.
Fidelity International is among the groups to have called on the government to create a single Isa within which people can switch between cash and investments, while capping the amount that can be held in cash to £4,000.
However, others have pushed back on the idea of capping the tax-free cash allowance, warning that the change would not spur investment into UK equities.
UK Finance, a trade body, said recently that it wanted to “retain the annual tax-free cash Isa allowance of £20,000, to avoid restricting consumers’ options”.
Additional reporting by Akila Quinio in London