Healey’s cash Isa reversal plans spark City row

John Healey’s reported plans to reverse the reduction in the cash Isa ceiling during his first Budget have ignited controversy in the City, with banks and brokers divided over the discontinuation of the measure introduced by his predecessor. The Chancellor will repeal the decision to lower the annual cash Isa limit from £20,000 to £12,000, according to the Financial Times.

The measure was initially implemented by former Chancellor Rachel Reeves with the intention of encouraging savings into UK companies and boosting amateur investment in the stock market. The decision is anticipated to be favorable to banks and building societies, who anticipate higher taxes in the upcoming Budget and rely significantly on deposits from Isa products to fund mortgage lending.

Building societies were among the most vocal opponents to the ceiling reduction last year, warning that it would disproportionately affect first-time home buyers. Simon French, chief economist at Panmure Liberum, pointed out that the flaws in the decision were evident in the previous year's Budget. "Restoring the ceiling may also be part of a package to ease the impact of an enhanced bank levy," French commented on X. Following the report, banking shares surged on Wednesday, as Dan Coatsworth, head of markets at AJ Bell, noted that cash ISAs represent a crucial funding source for banks and building societies, making the apparent shift in policy welcome news for the sector.

However, the elimination of plans to lower the ceiling has sparked backlash from vocal critics of the reduction, including brokers, who had previously urged former Chancellor Reeves to abolish the limit entirely to stimulate domestic investment. Michael Healy, chief executive of IG Consumer, lamented that the Chancellor had "squandered a golden opportunity" to aid British households.

Rob Morgan, chief investment analyst at Charles Stanley, warned that "flip-flopping on tax policy" is rarely beneficial, as many savers may have already adjusted their portfolio allocations in anticipation of the cut. Tom Selby, director of public policy at AJ Bell, also welcomed the end of former Chancellor Reeves' "car crash" reforms, emphasizing that the majority of the retail investment industry did not support the added complexity to the product.

He argued that the "buy now while stocks last" environment created by the lower ceiling was likely to have the opposite effect on retail investing, as people opted to invest in cash while they could.

Healey has also advocated for a more carrot-based approach to encourage investment in stocks and shares, suggesting that it would be better to educate people about the advantages of investing rather than cutting tax breaks on savings.