By James Rodger
Martin Lewis has issued a warning over a new cash ISA rule that is a “big mistake”. Labour Party Chancellor Rachel Reeves is set to unveil plans to reduce the annual tax-free cash ISA allowance from its current 拢20,000 ceiling, with an announcement expected at her Mansion House speech on 15 July. Martin said: “Reports @RachelReevesMP will announce a cut to the cash ISA limit at her 15 July Mansion House speech. “If true, I think it’s a mistake. I doubt it’ll substantially nudge people to invest not save; said to be the aim. This isn’t nudge economics, its piss people off economics. Currently you can put 拢20,000 in tax-free ISAs, whether cash (savings) ISAs, shares (investments) ISAs or the smaller types. READ MORE Rachel Reeves set to cut cash ISA allowance from 拢20,000 on July 15 “Its said the reduction’d only be for cash ISAs, so people can still invest the same tax free. NB At this point I should note, it is v likely to only impact future ISA limits (though whether the cut would start this tax year is a big question) so those with money already in cash ISAs shouldn’t panic. “My suspicion is that for many who use cash ISAs, it will just result in many having to pay more tax on their relatively paltry savings interest, not have an epiphany and think “oooh i’ll just fill up the remainder of my ISA allowance with investments instead”. Now I should note, I am in favour of encouraging people to invest in the UK. “It’s good for individuals over the longer term and for the economy, especially if a way is found to encourage people to invest in UK firms. “Yet this isn’t the route to do that. I’ll be disappointed if the Chancellor chose to listen to the big investment firms in the City, and shut down many building societies and consumer groups who’ve said its not a good route. “Instead lets start a conversation about how we encourage investments – even possible intervention when people save to explain other options. “We need to educate, provide better 1-on-1 easy guidance, and start to change the way people think about risk. But lets use the carrot not a stick.”