Money expert Martin Lewis has gone on record to warn Chancellor Rachel Reeves that any plan to cut Cash ISA limits down to £10,000 ‘isn’t going to work’.
The Money Saving Expert founder took to his Martin Lewis Podcast with a fresh episode on Thursday, October 16 where he addressed mounting speculation that Labour will cut Cash ISA limits in half in its upcoming Autumn Budget next month.
The aim according to the government, Martin set out, is to encourage investing by keeping the overall £20,000 limit but only allowing half of that to be held in cash and instead pushing people to invest in Stocks and Shares ISAs and, in particular, in UK stocks.
Martin told his Spotify, BBC Sounds and Apple Music listeners: “Now my view is, I agree a lack of investing in the UK is a problem. Both for individuals because over the long run with a broad spread of investments, investing will tend to outperform saving quite substantially.
“Also for the economy because it means UK stock market stocks aren’t as strong as they need to be because not enough money is going in there.
“So I agree with the diagnosis. I disagree strongly with the prescription. Which is cutting the Cash ISA limit. For me that is not a solution.”
Martin stressed that ‘we do not know’ that this is happening for definite but that it has been reported by the FT.
Martin added that the proposal will end up upsetting older savers and will not have the desired effect on younger people either.
He added: “My view is that if you cut the Cash ISA limit it will simply pee off millions of older people, I doubt it will change the dial at all on investing, it will just mean they pay more tax on savings.
“It will also cause a problem for building societies in order that they use savings to lend cash to raise mortgages. So it could be a real issue for lending on mortgages.
“Now look, let me be plain. If the Treasury was saying ‘we want to cut the Cash ISA limit because we want to raise more revenue’, I would say, OK. While I may not like it, it is a perfectly logical solution.
“But they’re not saying that, they’re specifically saying it’s to encourage investing. And I simply don’t believe this will do that. They’re using a stick when they should be using a carrot.”
Martin added that he proposed to the government an alternative option, that he would make a starter investment ISA bonus, giving a 10% bonus on the first £2,000 people invest.
Martin continued: “The whole point of this is, while £2,000 is not that much in the grand scheme of things, what you’re doing is we need education. So this, allowing people to dip their toe in the water with a benefit and then hopefully if the investments go well, that they will succeed, and they’ll have more money and they’ll go, yeah I’m gonna do more of this later.
“…Simply saying ‘well we’re gonna cut the Cash ISA limit so people can’t save as much tax-free’, all it’s gonna do is mean people pay more tax on their savings, it will be electorally unpopular especially with many older people.”
Martin added: “At the moment I think they’re gonna do the stick and I don’t think it’s gonna work.”
The Martin Lewis Podcast from October 16 is still available to listen to on BBC Sounds, Apple Music and Spotify.