Osborne told to raise ISA limit to £40,000
Trebling the maximum allowance on Individual Savings Accounts was yesterday recommended to the chancellor ahead of his Autumn Statement on December 5th, as a way he can both save money and boost the nation’s finances.
The proposal, one of nine designed to realign the UK’s savings framework, was floated by a respected think-tank that believes tax incentives, notably relief on income tax and NICs, have been “clearly flawed” since they were introduced over ten years ago.
It states that the annual contribution limits for ISA and tax-relieved pension saving should be combined into a single limit of between £30,000 and £40,000, with the full limit to be made available for saving within an ISA’s tax-free wrapper.
This combined limit could in future be used by the Treasury as a “key cost control lever”, with affordability-driven adjustments to it made as a regular feature in the chancellor’s Budgets, said the proposal’s author The Centre for Policy Studies.
The move, which the CPS estimates could save the exchequer between £600m and £1.8bn a year, would tap into the public’s growing appetite for ISAs, which offer ready access to cash and tax-free withdrawals, unlike income derived from a pension.
In fact last year, for the first time, more was invested in stocks and shares ISAs - £15.8bn – than personal pensions - £14.3bn. In that year alone, the total stash in ISAs grew by more than a quarter.
“The chancellor faces many difficult choices in the forthcoming Autumn Statement,” said Tim Knox, director of the CPS.
“It is easy to say what he should not do: to dream up new punitive taxes which are inspired more by political signalling than by their financial contribution to the Treasury or by their impact on the economy.
"Rather, sensible reform of the financial incentives for savings could yield a double dividend of increasing long-term retirement savings while also reducing the immediate cost to the Treasury.”