Labour urged to ditch 'damaging' plans to cut tax-free ISA allowance

LABOUR must ditch their "damaging plans" to impose a new "tax on savers", the SNP have said, as research shows proposals could hit the hard-earned savings of more than a million Scots.

The House of Commons Library research, commissioned by the SNP, reveals a quarter of adults in Scotland could be hit by the Chancellor's plans to slash the Cash Individual Savings Account (ISA) tax-free allowance.

The proposal being considered by Rachel Reeves ahead of the Spring Statement on March 26 could hit 1.12 million Scots to the tune of hundreds or thousands of pounds.

With the best cash ISA interest rates currently at 5%, the research shows savers could lose up to £5132 in interest to tax over a five-year period if the allowance is reduced to just £4000 a year – the plan being considered.

There have been some reports the tax-free allowance could be scrapped altogether. 

The UK Treasury could raid the savings of 18 million people across Scotland and the UK by reducing, or removing, the tax-free allowance.

It comes amid plans to cut billions of pounds of welfare spending with health-related benefits expected to be targeted.

The cash ISA was introduced in the 1990s to help and encourage people to save for their future. Currently, people can save up to £20,000 in a cash ISA each year without incurring any tax on the interest earned.

The SNP's economy spokesperson Dave Doogan (below) said the proposal represented another "broken promise" by Labour.

He 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.

(Image: House of Commons) "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. "The UK already has one of the worst savings rates in Europe. The Chancellor should be helping and encouraging people to put money aside, not mounting a Treasury tax raid on the limited savings that people have. "Voters were promised things would get better but under the Labour Government but 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."

At the most recent count, savers in Scotland had a combined £52.7 billion saved across the different types of ISA with an average of £39,917 per saver.

The total amount lost to any increased tax on savings would depend on a range of factors including the size of the reduction to the tax-free allowance, how much an individual is able to save, what rate of income tax they pay, and what they do with the money they can no longer save in a cash ISA. 

The House of Commons Library research reveals that the UK has one of the worst rates of saving in Europe. On average, UK households save just 2% of their disposable income compared to more than 19% in Switzerland, 13% in Sweden and the Netherlands, 11% in France and Germany, and 8% in Ireland.

Last week, consumer champion Martin Lewis told the House of Commons Treasury select committee of MPs: “I’ve already had people telling me they are worried about what’s going on, so they are going to withdraw from Cash ISAs, which is clearly not the right thing to do.” 

The Building Societies Association (BSA) has launched a campaign to protect Cash ISAs and has published its own research showing 73% of UK adults with Cash ISAs oppose the Labour Government’s plan.

Doogan added: "The tax-free allowance for cash ISAs should not be cut and people should not be forced into riskier, or most costly, savings products. 

"The SNP will fight to protect people’s savings and press the Labour Party to ditch these plans."