The Chancellor’s proposed changes to the Cash ISA in her November Budget risk complicating the ISA landscape and confusing consumers, according to the Treasury Committee.
The Chancellor announced the reduction of the tax-free allowance for Cash ISAs to £12,000 for those under the age of 65 from 6 April 2027.
The change forms part of the Government’s plans to encourage people to invest more of their money so that they can benefit from higher returns and long-term financial resilience.
Dame Meg Hillier, chair of the Treasury Committee, an influential committee of MPs, said: “The Treasury’s ambition is commendable, but I remain to be convinced that these reforms will drive the cultural change that ministers want to see.
"In her proposed changes, the Chancellor risks complicating the ISA landscape and confusing consumers. It is now clear where the Government stands on the issue. The next step is to see how this complex product will be delivered in the real world.”
The Government responded to an October report on the Cash ISA from the Treasury Committee, which had recommended that the Government should not cut the Cash ISA limit.
In the response to the October report, Lucy Rigby MP, Economic Secretary to the Treasury, wrote: “The Government wants to see more people benefit from the higher returns and long-term financial resilience that investing can provide. That is why the Chancellor has set out a series of bold measures to get Britain investing again, including the reforms to ISAs made at Budget.”
The changes are part of a set of potential new rules for the ISA regime.
The Government will consult earlier this year on a new simple ISA product aimed at first time buyers, which it hopes will eventually replace Lifetime ISAs.
Tom Selby, director of public policy at AJ Bell, said the Government has missed a “golden opportunity” to simplify the ISA regime.
He said: “Reforms should have been focused squarely on simplifying ISAs to make the ISA landscape easier for ordinary people to navigate, providing flexibility for consumers, rather than adding friction in the form of new allowances and extra complexity.
“If it is intent on pursuing this misguided course of action, then it needs to proceed very carefully. The new rules to prevent people circumventing the cut in the Cash ISA allowance need to be designed to cause the least amount of disruption to the current ISA regime, maintaining ISAs’ simplicity as much as possible and avoiding the imposition of unnecessary tax charges.”