Budget 2012: Nationwide calls for cash ISA increase

Pound coinsAhead of the Budget, we called for Chancellor George Osborne to increase the current cash ISA limit from £5,340 to £10,680, the same as the stocks and shares ISA limit (or from the start of the new tax year, from £5,640 to £11,280).
As this week's Budget was announced, I was therefore disappointed to learn that the Chancellor had chosen not to increase the cash ISA limit and, by not doing so, missed a chance to help savers.

The argument for increasing the cash ISA allowance to help savers is fairly straightforward. The current ISA rules mean that people with a stocks and shares ISA can invest double to what people can save in a cash ISA.

Some would argue that we should be encouraging people to invest in longer term stocks and shares ISAs. Stocks and shares ISAs potentially yield higher returns than cash ISAs, making them more attractive in today's environment where we have a relatively low interest rate environment coupled with high inflation. As a provider of both cash and stocks and shares ISA, I know full well the benefits of having a mixed portfolio of savings and investments and how it could make your money work harder.

However, the current ISA rules ignore the fact that this isn't suitable for everyone and many people prefer the security of cash savings. Why not give people the choice and let them decide how they allocate their ISA allowance?

Raising the cash ISA limit would also help first-time buyers, whose biggest hurdle to owning their own home is raising a deposit. Savers on a higher rate of income tax pay as much as 40% tax on their savings interest, while basic rate taxpayers pay 20%, so allowing first-time buyers to save as much as possible tax-free in a cash ISA will really help them raise a deposit quicker.

As stocks and shares ISAs should be treated as investments of at least five years and do not provide guarantees on their returns, cash ISAs are likely to be more appropriate for first-time buyers looking to get a deposit together quickly.

The Chancellor should look again at the ISA rules. Giving people the choice of how they use their ISA allowance is something we believe in and will be calling for again next year.

Richard Marriott is the Head of Savings at Nationwide
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