‘Tax on savers’ plan from Reeves could hit a million Scots – SNP

More than a million Scots could be hit by proposed changes to the tax-free allowance for cash Individual Savings Accounts (ISAs), the SNP has said.

Branding the plans a “tax on savers”, the party says there must be no cuts to the allowance in the Chancellor’s spring statement later this month.

Research from the House of Commons Library shows 25% of adults in Scotland have cash ISAs – some 1.12 million people.

Chancellor Rachel Reeves is reported to be considering lowering the limit on how much people can put into cash ISAs per year, down to £4,000 from the current £20,000 ceiling.

There have also been rumours it could be cut altogether.

Cash ISAs are individual savings accounts through which people can earn interest on savings without being taxed.

Ms Reeves has spoken of wishing to foster “a culture in the UK of retail investing like what you have in the United States” in order to achieve better returns for savers.

Research commissioned by the SNP found savers could lose up to £5,132 to tax over a five-year period if the allowance is reduced to £4,000 a year – assuming there is a 5% interest rate and annual deposits of £16,000.

SNP economy spokesman Dave Doogan MP said: “The Labour Party must ditch its damaging plans to impose a punishing new tax on savers, which would clobber more than a million Scots and could cost many households hundreds or thousands of pounds.

“This is yet another broken promise from the Labour Government, who said they wouldn’t increase taxes on families but are now dipping their fingers into people’s hard-earned savings.”

Mr Doogan said the UK currently ranks low among European countries in how much household disposable income is saved.

The UK’s figure is 2% while France, Germany and the Netherlands are all above 10%.

He continued: “Voters were promised things would get better but under the Labour Government the cost of energy, food and living is soaring, the UK economy is stagnating, unemployment is rising, and now the Chancellor wants to slash people’s savings too. It stinks.

“The tax-free allowance for cash ISAs should not be cut and people should not be forced into riskier or most costly savings products.”

Savers in Scotland are thought to have £52.7 billion in ISAs – an average of £39,917 per account – though this includes other types of ISAs such as stocks and shares.Last week, consumer champion Martin Lewis told a Westminster committee that people have already told him they are “worried” about their cash ISAs, adding: “I don’t think we should reduce the cash ISA limit.”

At the end of February, the chief executive of Leeds Building Society said staff have been “inundated” with questions from worried customers over the future of cash ISAs.

Richard Fearon said many feel it would be unfair to remove the tax-free allowance.

He told the PA news agency: “Reducing or scrapping cash ISAs will not necessarily create any extra investment in the UK – it’s unlikely to.

“But what it will do is lead to higher tax bills for savers and higher repayments for mortgage holders, so we think it is a bad idea.”

Ms Reeves said: “It is really important that we support people to save, to achieve their aspirations.

“At the moment, there is a £20,000 limit on what you can put into either cash or equities, but we want to get that balance right.

“I do want to create more of a culture in the UK of retail investing, like what you have in the United States, to earn better returns to savers and to support the ambition to grow the economy, creating good jobs right across the UK.”