British minister considers cutting tax-free cash ISA allowance

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British ministers are considering cutting tax-free cash ISA allowances of £20,000, but debates with the City of London should limit the level of the situation, according to two familiar people.

In a meeting with senior executives from banks including HSBC, Barclays and Natwest on Thursday, Municipal Secretary Emma Reynolds discussed reforming the ISA market, a broader attempt to help put more channels of capital into London-listed stocks.

People familiar with the situation told the Financial Times that the discussion involves reducing tax-free cash allowances – a move by some city groups in recent months to lobby as a way to attract funds to stock funds and domestic stocks.

“It's still part of the broader discussion they (the Ministry of Finance) have with you best encourage people to save for the future, and it's still a decision,” said one person familiar with the meeting.

The government's separate figures say it is expected that the government will reduce the threshold for tax-free cash ISA.

FT reported on the weekend that the government is preparing to review the market in a bid to encourage depositors to move from cash to investment and strengthen London's sick stock market.

Under the current system, individuals can accommodate up to £20,000 in cash and investments, free income and capital gains taxes per year. There are four main ISA products, with cash being the most popular product to date, saving £30 billion.

Emma Reynolds tries to help transfer more money into London-listed stocks ©Charlie Bibby/ft

Any move to cut the tax-free cash threshold since the creation of Labour Prime Minister Gordon Brown in 1999 will mark one of the biggest changes in the UK’s savings market.

Reservists put £4.2 billion into cash ISA in March, an increase of nearly a third from the previous year, according to investment website Hargreaves Lansdown.

Meetings with lenders (including Lloyds Banking Group, National and TSB) are one of the series between the Ministry of Finance and parts of the city, from banks to industry institutions, in terms of reforming the ISA market.

According to people familiar with the plan, the Treasury has arranged another meeting with the CEO of the retail investment website, including Dan Olley of Hargreaves Lansdown and Michael Summersgill of AJ Bell.

One of the people said the discussion is expected to focus on cash and investment and invest in UK assets.

After the meeting, Rachel Reeves said in a statement after the meeting: “Currently, there is a limit of £20,000 for you to put it in cash or stock, but we want to make that balance right.”

She added that she wanted to create “more culture of retail investing in the UK” in order to “get better returns for savers and support the ambition to develop the economy, create good jobs in the UK and create good jobs in the UK”.

Fidelity International is one of the groups calling on the government to create an ISA where people can switch cash and investments while limiting the amount of cash holdings to £4,000.

But others have delayed the idea of limiting tax-free cash allowances, warning that the change will not stimulate investment in UK stocks.

Trade agency UK Finance recently said it wants to “keep the annual tax-free cash ISA allowance of £20,000 to avoid limiting consumer choices”.

Other reports from Akila Quinio in London