In a letter sent to the chancellor last week, Summersgill says cutting the Cash ISA allowance from £20,000 to £12,000 for under-65s from April 2027 will harden the border that exists between short-term saving and long-term investing
In addition, he warns consequential rules designed to prevent people circumventing the Cash ISA allowance reduction risk undermining the tax-free status of Stocks and Shares ISAs and discouraging people from investing
Summersgill urges government to avoid the ‘horrendous complexity’ of the heavy-handed approach to anti-avoidance measures being proposed
In the letter sent to the chancellor last week, following a raft of changes to ISAs announced at last year’s Budget, Summersgill says: “It is my strongly held view these unwieldy proposals are doomed to fail in their aim of encouraging more people to invest for the long term and represent a significant backward step for a product whose success has been largely down to its relative simplicity.
“Rushing to implement these changes, which represent a material intervention in the market with wide-ranging consequences, without a proper consultation or any clear evidence they will incentivise long-term investing represents the worst kind of policymaking.”
Summersgill goes on to warn the proposed cut to the Cash ISA allowance has been met with “universal opposition” from the retail investment industry.
He says: “There is no evidence this will materially boost retail investing – indeed, a survey conducted by AJ Bell found the vast majority would simply opt for cash alternatives, such as NS&I bonds, or save in a taxable cash account. As we warned Treasury officials on multiple occasions ahead of the Budget, this will harden the border between Cash ISAs and Stocks and Shares ISAs, making it less likely existing excess funds held in Cash ISAs will shift to long-term investing through Stocks and Shares ISAs.
“Given there are 3 million people with at least £20,000 invested in Cash ISAs and nothing invested in Stocks and Shares ISAs, this represents a missed opportunity worth at least £60 billion. In the short term, people will rationally flock to Cash ISAs – the opposite of the policy intent – ahead of the allowance reduction in April 2027.”
On the proposed anti-avoidance measures, Summersgill says the intention to tax uninvested cash held in Stocks and Shares ISAs is “worrying” as it “punishes retail investors for using the Stocks and Shares ISA the way it was designed to be used”. He urges the government to avoid adding “horrendous complexity” to ISAs through the measures and to steer clear of any restrictions on cash-like investments, which form a “central part of many investors’ portfolio construction”.
Summersgill says: “The simple fact is that cash passes through Stocks and Shares ISAs all the time. Contributions are made in cash, dividends are received in cash, fees are paid in cash, and risk-based assets have to be sold to create the cash for withdrawals. In other words, the government intends to punish retail investors for using the Stocks and Shares ISA the way it was designed to be used by levying tax. It could potentially mean Stocks and Shares ISAs which allow people to hold cash can no longer be marketed as ‘tax-free’, weakening the appeal of the most popular investment account in the UK market.”
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