The Chancellor was today accused of punishing ISA savers by freezing allowances on the popular savings accounts for the sixth year running.
While Jeremy Hunt pledged to maintain the controversial triple lock on state pensions and talked of giving employees a pension “pot for life”, ISA allowances were held at £20,000.
That news was buried on page 88 of the Autumn Statement on Wednesday.
Increasing the ISA allowance – often used by those seeking to raise cash for a home deposit – in line with inflation would see it at about £25,000 a year now.
According to the government’s own figures, the cost of ISA tax relief in 2018-2019 was £3.3 billion.
Evening Standard analysis suggests that would be £1bn more now if they had upped the allowance allowing for market growth.
John Blowers, managing director of Investegate, said: “With more than £700bn now held by UK investors in these tax-exempt ISAs, government consensus seems to be that the deal is just too good. So rather than perhaps encouraging those investors with bountiful portfolios to start looking at backing the UK growth companies Mr Hunt is so keen to promote, he has instead elected to pull up the drawbridge and leave the allowance unchanged for another year.”
By freezing allowances for ISAs, HMRC will benefit from a further £300m by the end of the decade.
Some economists liken the freezing of ISA allowances to that of “fiscal drag” on income tax.
Low earners tend to favour ISAs over pensions and are already likely to pay more tax next year due to the fiscal drag that pulls ever higher numbers of people into the higher rate tax band.
In contrast, maintaining the triple lock on pensions – which increases state pension by the highest of inflation, wage growth or 2.5% in full will lead to an 8.5% uplift in the State Pension next Spring.
The government has claimed it wants to encourage ordinary savers to invest in the stock market, partly to boost shares and for their own long-term financial health.
But most savers still opt for “cash” ISAs rather than those with an equity element.
Andy Bell, founder of investment platform AJ Bell, says “In the run up to the Autumn statement, I had sensed a real desire in the Treasury to grasp the nettle and properly simplify the ISA regime. This makes it all the more disappointing that the Chancellor has instead offered up a pick n mix of in-the-weeds proposals that won’t make it any easier for the novice investor to decide which is the best ISA for them.”
“This particular mish-mash of ISA proposals wouldn’t look out of place in a beauty pageant of pigs wearing lipstick. If there was a highlight of the Autumn statement, it was the fact that the ill-conceived idea of a GB ISA didn’t see the light of day.”
The “pot for life” idea would allow people to take pension monies from employer to employer, though some critics say this will benefit insurance companies rather than investors. It is also far from clear what it would cost HMRC.
Richard Parkin at BNY Mellon Investment Management said: “Helping individuals have their pensions in one single pot usually makes sense, but if that pot is held in a poor quality product then this could result in worse outcomes for individuals.”
