Are the Isas ripe for a Labor raid? Five savings experts give their verdict

When it comes to wealth protection, Isas – both cash and stocks and shares versions – are often the cornerstone that savers use to protect cash from tax.

These savings accounts allow you to save up to £20,000 each year tax-free – and many have built up hefty pots over the past 25 years, out of the clutches of the taxpayer.

Labor is now at the helm and all eyes will be on newly appointed chancellor Rachel Reeves to see what she has in store for our money.

Between January 2023 and May 2024, £73.5 billion poured into cash Isas as savers made the most of tax breaks with rates at a 15-year high.

But there are fears Isas could be stuck in the crosshairs of Rachel Reeves’ plans, given the government’s need to raise cash without an immediate tax hike.

Labor has ruled out an increase in income tax, national insurance, VAT or corporation tax.

The Isa contribution has been frozen at £20,000 since it was increased to that level by former chancellor George Osborne in 2016 – a significant boost to tax-free pots at the time.

There have been calls to increase the Isa limit. However, this did not happen in the last March budget.

We asked five savings experts what Labor might have in store for Isas, whether the contribution could be cut and whether Isas could be taxed – or if savers’ fears are simply unfounded.

Election money

James Blower, founder of Savings Guru, said: “I do not expect the Isa allowance to be reduced under a Labor government.

“I think at worst the allowances will continue to be frozen because the Tories have had them since 2016/17.

“I think in the medium term Labor will try to simplify the Isa system, but now they have bigger priorities and I would not expect any significant changes to come until the 2026/27 tax year at the earliest.

“They can do a small increase in allowances – it will be a very cheap way of giving something to savers without it costing huge sums.

An increase to say £22,000 would cost very little.

“I really don’t see Labor taxing Isas – what we’ve seen from Sir Keir Starmer so far is that he’s moved Labor to the center of politics and tried to build confidence to win the election.

“This approach has worked for him and Labor and I can’t see him ruining it by taking a step like taxing Isas, which would be incredibly unpopular and bring in (relatively) very little additional taxation.

“There are easier and more popular wins for Labor in raising taxation.”

Andrew Hagger, founder of MoneyComms, said: “I’m sure Rachel Reeves will go through all the current tax rules and benefits with a fine tooth comb in an attempt to free up some spare cash and this will no doubt include a review of the current range of Isa products and allowances. process.

“There is the potential for a reduction in the £20,000 Isa contribution (introduced from the 2017/18 tax year) but I would be surprised if this happened.

“It is more likely that there would be some tinkering around the edges, such as the recently announced British Isa products and the much criticized Lifetime Isa products.

“Isas could be taxed, but again I would be amazed if that happened. In the 25 years since it was introduced by Gordon Brown in April 1999, the Isa has almost become a permanent fixture in the pile of cash savers and equity investors.

With interest rates on savings still relatively high, more and more savers are exceeding their tax-free personal savings allowance and relying more on Isas to keep their interest income away from the taxpayer, so a sudden rug pull would cause a lot of heartache . and anger among millions of savers.

“I can’t see such a radical and unpopular step being taken so early in the tenure of a new Labor government.”

Rachel Springall, financial expert at Moneyfacts Compare said: “The new government could cancel existing tax breaks or even other money-saving policies.

“One tax-free allowance that the Conservative Party introduced was the Personal Savings Allowance (PSA) in 2016, and that is something that could change.

“If this were to be withdrawn, it could lead to a surge in savers turning to their Isa allowance, which shields their savings interest from tax.

“Isa allowances could be reassessed in the future, but savers can hope to see Isa allowances increase from £20,000 as they have not changed for years. Isas alone may not be able to solve the savings gap for low-income consumers, and Labor could be thinking about ways to improve this situation.

“Labor introduced Isas 25 years ago to encourage people to save or invest their money tax-free.

“However, there is a possibility today that Labor could review how taxes could work on individuals with large Isa pots, such as limiting the amount that can be tax-free.

“The money earned from taxes could then be used for other initiatives such as the Help to Save programme.

“Another plan for Isas that could now be scrapped is the UK Isa, which was designed to boost investment in the UK economy but was criticized by some as confusing savers.”

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, said: “An Isa is at the heart of how people save and invest in the UK, with more than 22 million people relying on it.

“It provides simplicity for those starting their saving and investing journey, as they don’t have to worry about tax as they begin to build their financial resilience.

“There is no precedent for a cut in the allowance that hasn’t fallen in the 25 years it’s been around, so it would be an incredibly unwelcome and surprising bolt from the blue if the government were to consider it.

“Stability in the savings and investment space is essential if we are to encourage people to save money today and improve their long-term security.

“The tax rules are never set in stone, but each of these savers and investors put money into an Isa knowing it will be protected from tax, so any changes to the treatment of existing Isas would also be hugely controversial.

“There are so many other tricks the government could use to raise taxes that it would be unlikely to rush into such an unpopular and destabilizing step.”

Brian Byrnes, Head of Personal Finance at Moneybox, said: “It’s only been days and speculation has been rife about the newly elected Labor government’s plans for Isas.

Labour’s Financial Services Review published in January highlighted their intention to simplify the Isa environment to “make it easier for people to experience the benefits of saving and investing their money”, and it is fully within their power to change the Isa contribution and change the taxation around the Isa.

“However, it is clear that there is an urgent need for financial products to facilitate the path to wealth creation for the vast majority of the UK population.

“And there can be no doubt that Isas help achieve this by introducing positive ways of saving and helping people build wealth over a lifetime.

“However, in their current form it was said that they could benefit those on higher incomes who were able to maximize their contributions.

“With that in mind, we would encourage our new administration to focus on implementing policy changes that support and empower everyday consumers to achieve their financial goals and build wealth for the future with greater confidence.”