Government should not cut cash Isa allowance, says Treasury Committee

Tom Selby, director of public policy at AJ Bell, said: “While the Chancellor’s policy goal of boosting retail investing in the UK is the right one, slashing the Cash ISA allowance would be a clumsy and ineffective way to go about it.

“All this would do is hardwire the barriers that currently exist between Cash ISAs and Stocks and Shares ISAs, when behavioural research tells us tearing these barriers down and simplifying the landscape would be the most effective way of helping more people invest for their financial future.

“Cutting the Cash ISA allowance could also lead to a scarcity mindset around Cash ISAs, resulting in a ‘use it or lose it’ approach towards contributions under a lower annual limit.

“What’s more, the inevitable ban on transfers from Stocks and Shares ISAs to Cash ISAs would create friction in the system and potentially mean those considering a Stocks and Shares ISA worry about being locked in to the account.

“Rather than tinkering with allowances or reheating the unnecessary and ill-thought-out UK ISA, the Chancellor should focus squarely on the needs of retail investors by addressing the negative impact the siloed ISA structure has, where people all-too-often simply stick with cash saving when they could be better off investing.

“Given ISA investors exhibit a significant ‘home bias’ towards the UK, boosting retail investing through simplification should also naturally benefit UK capital markets.

“The obvious starting point for this consumer-focused reform would be to combine Cash ISAs and Stocks and Shares ISAs, the two most popular versions of ISAs in the UK, into a single main ISA product.

“As well as simplifying the overarching ISA framework, this reform would make it easier for people to transition from holding cash to investing for the long term and support wider efforts to boost retail investing, improve financial resilience and drive economic growth.”