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A group of MPs has strongly advised Chancellor Rachel Reeves against cutting the cash Isa tax-free allowance in the upcoming Budget. The Treasury Select Committee stated that reducing the tax-free allowance may not effectively promote an investment culture in the UK. Reeves is expected to make announcements regarding tax rises or spending cuts in the forthcoming Budget, with potential changes to cash Isas under consideration.
In response to the recommendations, Chancellor Reeves emphasized the need to strike a balance when making tax changes and underscored the importance of ensuring that individuals receive satisfactory returns on their savings. Earlier concerns about reducing the allowance for tax-free cash savings in favor of encouraging investment in stocks and shares were met with opposition from various financial institutions and consumer advocates, leading to a pause in the proposed plans.
The proposed change specifically targets cash Isas, with reports suggesting a potential reduction of their tax-free amount to £10,000. Despite the looming Budget shortfall estimated to be around £22 billion, Reeves is committed to maintaining the current £20,000 limit for Isas. The committee highlighted that cutting the cash Isa allowance might not incentivize people to invest in stocks and shares, calling for a comprehensive effort to enhance financial education and provide accessible financial advice to help individuals make informed decisions.
Dame Meg Hillier, Chair of the Treasury Select Committee, emphasized the need for a more concerted effort to improve financial literacy and access to quality financial guidance. Reducing the tax-free allowance for cash Isas could negatively impact savers, especially older individuals who may be less inclined to take risks with their savings. The report cautioned that such a reduction could lead to less competition in the financial products market, potentially resulting in higher costs for consumers. BBC News has reached out to the Treasury for comment on the matter
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