Politicians should leave cautious savers and ISAs alone

The Herald Scotland

12 hours ago

Showing a talent for U-turns that would shame Torvill and Dean, this is an administration that doesn't have a clue about how to govern or balance the books. Thanks to a disastrous week at Westminster, the cost of welfare, far from being reduced, will now be even higher. So how is the Chancellor going to fill the yawning financial hole that has opened up beneath the country's feet?
Doubtless there will be a smorgasbord of unpalatable solutions, among them higher taxation and spending cuts. Thus, within 12 months of coming to power, a party already struggling for authority and respect appears doomed to losing the confidence of a large swathe of the electorate.
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While Rachel Reeves considers how to approach the autumn budget – I'd bet splitting the atom was easier – one option, mooted even before MPs voted on the welfare reform bill, is to reduce the £20,000 limit on cash ISAs. Some will recall that the Chancellor was making noises about taking this step earlier in the year, but appears to have been dissuaded after listening to advice from building societies and consumer groups. Well done to those canny millions who, in response, took out £14 billion-worth of cash ISAs at the start of the new tax year in April, the highest number since they first appeared in 1999. Shouldn't that tell the government something?
Clearly, it isn't in the mood to listen. Assuming she is still in post, it is widely predicted that in her Mansion House speech on July 15, Reeves will be coming for cautious savers with renewed determination. That this is a government agenda, not merely a pet project, is evident. It's safe to assume that whoever is in charge of the Treasury will press for the same reform.
Should speculation prove correct, the people in the government's sights are mainly those approaching or in retirement: prudent life-time savers who want to secure their hard-earned money in a tax-free account. They might not be the backbone of British banking, and they are certainly not adventurous. What they are is predictable and numerous, preferring to tuck their cash safely away, confident that the interest rate promised on opening their account will be delivered when it matures.
As yet, nobody knows what level of cash ISA limit the Chancellor will opt for, although some believe it could be as low as £4000. Such a reduction is intended to encourage the risk-averse, such as me, to invest instead in stocks and shares. In theory, these offer greater returns over the long-term, while also boosting the British economy.
The theory is fine for those versed in the money markets, who have nerves of steel as well as youth and a good income on their side. Sadly, many of us with savings we'll one day need to call upon are neither fiscally sophisticated nor able to take a far-sighted perspective that would allow us to weather stock markets wobbles.
Donald Trump sent the stock exchange into turmoil with his announcement. (Image: Getty) Early in April, I bumped into a friend in her seventies, who was in rueful mood. Donald Trump's announcement of global trade tariffs had just sent the stock exchange into turmoil. With the stock markets suffering their sharpest drop since 2020, she had watched in horror as her stocks and shares investments plummeted like gannets nose-diving off the Bass Rock. 'I've said goodbye to my holiday in Bermuda,' she grumped.
A younger friend also checked on his accounts. 'You didn't look, did you?' his partner asked, when he broke the news of his greatly diminished nest-egg. She had the right idea. With any investment susceptible to the vagaries of the international economy, it's best not to watch its fluctuations. That way lies headaches or cardiac arrest.
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Yet, whenever news of market volatility dominates the headlines, and doomsters announce that trillions have been wiped off their value, who wouldn't want to see how much they'd lost overnight? Even if the markets recover, as they did after April's slump, it is impossible to predict when – not if – there'll be another slump. Investing in this way is no different from gambling. Just look at the small print of every stocks and shares product, warning that 'investment value can go up or down and you could get back less than you invest'.
For savers who were born without the gung-ho gene, the problem is that confidence in those who run the country is low. We can be pretty sure that, with the NHS in its current state, at some point we'll have to fork out for knee and hip operations ourselves. And that's before considering care requirements in old age!
Those with a cushion of money to fall back on are the lucky ones, that goes without saying. Many cash ISA savers, however, are far from wealthy, and have simply been sensibly putting something aside for decades. The truly well-off, by comparison, can not only afford riskier investments, but have accountants to help them avoid paying too much tax on their gains.
If there was more faith in the way Britain was governed, and a greater sense of security about what lies ahead, some savers would be spending as well as squirrelling, thereby helping to fill the nation's coffers. But it's been a long time since many of us trusted those in power to run the economy. Instead, we've been in a brace position. I'm not saying that the diminution of cash ISAs counts as a calamity. Nevertheless, by penalising the less well-off but thrifty, Labour is hurting those it should be taking care of. By any calculation, that's not good.
Rosemary Goring is a columnist and author of history books and novels. Her latest work is Exile: The Captive Years of Mary, Queen of Scots.