MPs Warn Cutting Cash ISA Allowances will Restrict Mortgage Lending

The Treausry Select Committee (a committee of cross paty MPS) has issued a report suggesting that cutting the Cash ISA annual allowance will restrict flexible mortgage lending and may even put Building Societies at risk.

It has been rumoured all year that the Chancellor wishes to encourage UK savers to invest in UK businesses to stimulate the economy via Stocks and Shares ISAs rather than saving in Cash ISAs, which do little for the economy and merely act as a tax drain on government coffers with limited benefit to the saver when getting tax free interest e.g., for a 5% Cash ISA tax free benefot is relatively low value to the safer at say 1% tax saved whereas investing in Stock ISAs would benefit the economy and therefore, us all.

It has been rumoured that the Chancellor may reduce the Cash ISA allowance down from £20,000 pa to £10,000.  

Comment

In our opinion, he Treausry Select Committee is correct in their assumptions.  Cutting Cash ISA allowances does not mean Cash ISA savers will invest in stock ISAs, that said many do.

By cutting Cash ISA allowances it will lower cash flow into Banks and Building Societies and will resttrict the amounts of funds they have to lend in the form of loans, credit cards and mortgages.  Som Building Societies do relay on Cash ISA sales and cutting the allowance may put some at risk.

Even if cautious savers do still invest in taxable cash products rather than Stock ISAs, it will still cut bank revenue also meaning they may prove less flexible in offering higher lown to value mortgages or other ‘selective’ and innovative mortgage products.