Budget 2014: A cap on ISAs would be the final insult to savers

With Budget day looming there has been the expected flurry of predictions and rumours doing the rounds and the most worrying news is that the government is planning to put a lifetime cap on ISA contributions.

Most worryingly of all is that this may be true, unlike many of the picked-out-of-thin-air-to-generate-headlines predictions that we often hear.

Apparently the Treasury approached some leading names before the Autumn Statement last year to gauge opinion on how well an ISA cap would go down. The short is; not very well.

But just because it didn't sit well with financial services companies doesn't mean that it won't happen.

The level of cap is unknown but it would have to be well above £100,000 as that's what you would have saved into an ISA so far had you saved your maximum allowance each year - not to mention those who were saving into ISA predecessor PEPs.

There is always talk of ISA millionaires and the press love to extol the virtues of ISAs and provide tips on how you can join the millionaire's club through this humble wrapper. Maybe we shouldn't have written so much about it as it's now caught the eye of the taxman.

That's the problem with tax-free, is that it can all too easily become taxed when the government is short of a few quid.

The fact that it's such a generous tax break means people have a lot invested in ISA - 24 million people have an ISA - a retrospective tax would be extremely lucrative.

But it would also be an appalling idea. As with any retrospective tax it would have to waive through those who have already met or exceeded any new limit. So a new limit would effectively hit the youngest hardest. We've already seen annual an lifetime allowances for pension contributions cut and an ISA cap would reinforce a message from the government to younger people: we don't want you to save.

The idea also ignores the fact that's many pensioners are using their savings to top up their meagre pensions.

Our only saving grace is there is an election coming up and no party wants to be seen raiding people's savings.

We may be safe for another year but the knowledge that the Treasury has already floated the idea is a shot across the bow and makes me wonder for how long our ISAs will be safe for.
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