Today the UK has one of the lowest savings rates in the G20, according to data from the OECD.
As interest rates have soared, so has the cost of Isas in terms of lost tax revenue.
In 2023-24, Isas cost £6.7bn in tax relief, up from £3.7bn in 2021-22.
Last year, the Resolution Foundation suggested capping Isas £100,000 to reduce the amount of forgone tax.
Others have argued that a cap would discourage savings by making Isas more complicated. Tom Selby, of AJ Bell, said: “The UK needs to focus on building a savings culture and encouraging people to plan for their financial future. Slashing the Isa allowance or introducing a cap on Isa savings would be retrograde steps that would send a damaging anti-savings message to Brits and add unwelcome complexity to the system.”
Molly Broome, of the Resolution Foundation, said: “The Government’s flagship UK Isa policy, designed to promote saving, may be well-intentioned – but it disregards the fact that Isas are expensive, poorly targeted, and unlikely to increase long-term saving.”
The think tank argued that tax reliefs are largely ineffective at encouraging long-term saving, instead incentivising richer people to move their money and maximise returns.
It said that the behavioural interventions were more effective, citing auto-enrolment as an example.
Today the rules are changing so savers can stash away up to £20,000 in as many of the same type of Isa as they want. This compares to previously when savers were limited to opening one of each type, each year.
In the Spring Budget, Chancellor Jeremy Hunt unveiled a new “British Isa” which, if implemented, would give savers an additional £5,000 on top of the existing £20,000 annual allowance.
Robert Johnson is a UK-based business writer specializing in finance and entrepreneurship. With an eye for market trends and a keen interest in the corporate world, he offers readers valuable insights into business developments.
