Rachel Reeves's cash Isa raid is a blatant attack on pensioners

Telegraph

a day ago

What are you doing with your cash savings? Let me know: [e-mail].
I probably don't need to tell Telegraph readers not to trust Rachel Reeves.
Perhaps it's no surprise – given her history of, ahem, embellishing her CV – that I don't think the Chancellor is being entirely honest about her motives around Isas.
It is thought Reeves will use this month's Mansion House speech to announce a dramatic cut to the limits on cash Isas. Handily, this would not break her promise not to raise taxes on 'working people', and would land largely on the shoulders of pensioners.
Currently, you can save £20,000 a year into a single Isa, or across several types, such as investment Isas or the lifetime Isa. The Chancellor previously signalled the overall limit would not change, but is now understood to be preparing to slash the amount you can put solely into cash accounts to £5,000 or even £4,000 a year.
This will be justified by saying that savers need to be encouraged to invest in British companies. This, the Government would argue, generates higher returns for investors than boring old savings accounts – and gives London-listed companies a much-needed boost.
But the truth is that if you're an 85-year-old saver, you probably don't want or need to invest your cash – and Reeves, of course, knows this. Indeed, it would be an incredibly risky move. If Donald Trump's latest surprise move sends your portfolio down 20pc, you might not have very much time to recover those losses.
Instead, millions of cash Isa savers will simply be forced to put their money into traditional bank and savings accounts. Outside of the tax-free Isa wrapper, the interest on that cash will attract income tax just like any other earnings.
The 'savings allowance' does protect some interest from income tax, but it is set pitifully low.
While basic-rate payers can earn £1,000 a year tax-free, higher-rate payers only get £500 – while those earning more than £125,000 a year get... zilch. These limits have been frozen for nearly a decade, while wages and interest rates have soared.
By stealth, our tax bills, whether paid as a salary or savings interest, are rapidly rising.
Say the cash Isa limit does drop to £4,000 a year from April 2026. If you put the full amount in and add the remaining £16,000 into a savings account outside of an Isa paying, for example, 4.6pc, it would generate a tax bill of nearly £100.
And that's not taking into account any money you already have saved. Replicate that across millions of people across Britain, and HMRC – or rather the Chancellor – will be raking it in.
In January, Shawbrook Bank warned an extra 800,000 accounts would generate more than £1,000 of interest this year, triggering a tax bill. There were already more than six million accounts big enough to pass this threshold.
But this analysis does not take into account further reforms to Isa limits or what evasive action savers are already taking. Some £14bn flooded into cash Isas in April, a record for a single month, as families sought to shelter their money while they still can.
My advice to you is to do the same (you can find today's best cash Isa rates here). Savings passed between spouses are tax-free, and children have a very generous £9,000 Isa allowance of their own.
Remember too that you can hold cash in a stocks and shares Isa, though the rates are poor, or by-proxy via 'money market' funds that invest in low-risk assets that produce a similar return to cash.