The Spring Statement was supposed to be a non-event – at least that’s no doubt what the British government was hoping back in the summer of 2024. As winter turns to spring in 2025, that’s looking like a forlorn hope.
Tight fiscal boundaries, mounting pressures on the public purse, geo-political upheaval and a stumbling economy are all combining to make life difficult for Chancellor of the Exchequer Rachel Reeves – and to fuel speculation that some sort of revenue-raising measure could be announced on 26 March, despite rumblings of discontent among UK businesses and households.
On taking office, the Chancellor indicated that the government would hold just one Budget a year in the autumn, where tax policy would be set, and the upcoming Spring Statement was supposed to be a formality – an update on the public finances alongside the Office for Budget Responsibility’s latest economic outlook. In principle, the Spring Statement should not therefore see any changes to tax policy, especially given that most of the measures announced in Reeves’ October Budget have yet to come into force.
“It is currently more likely that we will see spending cuts rather than tax rises,” said Jason Hollands, a managing director with wealth manager Evelyn Partners. “The Chancellor should be well aware that the tax measures announced at the October Budget have had a chilling effect on the economy, especially the rise in employer National Insurance contributions. With businesses now facing the threat of US tariffs, more tax rises would be very damaging. The government is also boxed in by Labour’s manifesto pledges not to raise income tax, NI, VAT or corporation tax.”
Capital gains tax and dividend allowances have been cut to meagre levels and the personal savings allowances have also remained frozen, drawing many savers and investors into paying tax on their interest and investment returns and potentially hindering investment decisions.
While further direct tax-increasing moves might be unlikely this month, the Spring Statement could see the announcement of reviews and consultations on tax reforms and “simplification” proposals that might result in changes at the next full Budget. One such area could be an overhaul of the gifting regime.
- The benefits of using your ISA allowance early this year
- Cambria goes live with “endowment style” ETF
- Spring Statement confirms worries about growing UK recession risk
Will it be ‘back to the future’ for ISAs?
Hollands says many savers have been getting twitchy in recent weeks with a steady drip of speculation that the Chancellor could overhaul ISA rules this year. While it seems unlikely this would occur at the Spring Statement, unless Reeves puts it to bed, it’s an issue that is likely to rumble on until the next Budget.
As some asset managers and City brokers have been busy lobbying for measures to divert more investment funds into UK equities, the speculation has grown that the Chancellor is listening and could look to restrict the amount of cash going into ISAs, nudging savers towards investing instead.
“It seems very unlikely that cash ISAs would be scrapped entirely,” says Hollands. “However, capping them as a proportion of the current allowance is a credible threat and would essentially turn the clock back by a decade, as prior to 1 July 2014 the proportion of the ISA allowance that could be held in cash was limited to 50% of the overall allowance.”
While it is undoubtedly true that too many people keep excess savings in cash and could be missing out on the higher long-term returns that can be achieved from investing, anything that reduces choice and flexibility is a step backward.
For some people, investing will simply be too risky and so a reduction in cash ISA limits will just end up exposing more of their savings to tax in standard savings accounts – particularly with the personal allowances frozen and dwindling in real terms. And don’t forget that additional rate taxpayers have no PSA at all, so their options to keep cash savings tax-efficiently could be closed off.
The key question is at what level a cap might be set. An annual cash limit of £10k for instance would not impact many cash ISA savers.
How the rules for ISA investing could change
There should also be a wider concern. If you follow the argument through that City firms have been encouraging the Chancellor to curtail cash ISAs to drive more cash to boost economic investment (rather than specifically achieving better returns for the saver), then it begs the question as to what Reeves might be thinking about Stocks & Shares ISAs as well?
After all, the current Government’s interventionist logic might lead it to conclude that tax incentives should be used to encourage investment into UK markets, not US or overseas businesses like NVIDIA NASDAQ:NVDA, Apple NASDAQ:AAPL and Tesla NASDAQ:TSLA.
“The flawed idea of an extra “British ISA” might have been abandoned,” says Hollands, “but the arguments for it have opened a Pandora’s Box: a risk now is that the core ISA allowance could be reshaped to fulfil a similar objective instead.”
As with limits on cash in ISAs, could we see a “back to the future” move at some point where Stocks & Shares ISAs are required to invest primarily or partially in UK equities? Personal Equity Plans, the predecessors of ISAs, were originally restricted to UK equities and then a limited ability to invest 25% of the allowance overseas in “non-qualifying” investments was introduced before full flexibility was granted.
Any narrowing of the range of investments that can be held in ISAs might be cheered on by those hoping to boost interest in the UK stock market, but it would be bad news for the investing public.
