City wants more investment in stocks but move could reduce availability of mortgages for first-time buyers. Britain’s biggest building society has waded into a row over whether the government should cut tax breaks on cash Isas, arguing such a move would reduce the availability of mortgages for first-time buyers. In recent days it has emerged that the chancellor, Rachel Reeves, is being lobbied by City firms to scale back or ditch tax breaks on the popular savings accounts, which are used by almost 8 million savers each year.
They want the government to put more focus on the riskier practice of investing in the stock market, which would align with its mission to boost economic growth and could deliver higher returns to individuals over the long term. Tax-free Isas were introduced in 1999 and the main two types are the cash Isa and the stocks and shares Isa. At present, the most you can save in an Isa is £20,000 per tax year.
More than 18 million people have a cash Isa and there is almost £300bn sitting in them, but last week the new economic secretary to the Treasury, Emma Reynolds, appeared to take a pot shot at them when she asked a House of Lords committee: “Why do we have hundreds of billions of pounds in cash Isas? … What can we do together in parliament about trying to drive an investment culture that realises cash is not a good investment, especially in a high-inflation environment?”.
However, cash Isas are a key source of funding for banks, building societies, credit unions and other providers, which use the deposits to fund loans to households and businesses. Tom Riley, director of retail products at Nationwide building society, a leading provider of the tax-free accounts, said: “Cash Isas not only help ordinary people save efficiently but enable us to fund our first-time buyer lending.”.
He added: “Any limitations on lending would further impact those looking to get a foot on the housing ladder at a time when saving for a deposit remains a significant challenge.”. Nationwide is one of the UK’s biggest mortgage lenders and in November it announced “record” growth in home loans and deposits. Last September it announced it would let first-time buyers applying for a mortgage borrow up to six times their income – a first for a major high street lender.
Other building societies have issued similar warnings. Andy Moody, chief commercial officer at Leeds building society, said there would be “a significant detrimental impact on mortgage lending, including the thousands of first-time buyers we support every year, if the cash Isa rules were undermined”. Chris Irwin, director of savings at Yorkshire building society, said removing cash Isas as an option for savers would “have detrimental impacts on the financial wellbeing of many, along with increasing their tax liability”.
Nationwide’s comments come hard on the heels of a letter to Reeves from trade body the Building Societies Association (BSA) which urged the chancellor to keep cash Isas. “I am writing to put on record how strongly we disagree with the recently reported calls from City firms to restrict cash Isas,” said BSA chief executive Robin Fieth, responding to reports that first emerged in the Financial Times.
