Reeves is desperate for anything that might help the economy grow, as it collapses on her watch. And she doesn’t care who pays the price.
Big financial institutions are preying on the Chancellor’s weakness by pressing her to launch an assault on the hugely popular £20,000 Cash ISA allowance.
Now it seems she’s buckled as a report in The Daily Telegraph predicts she’s about to slash the hugely popular tax break by a staggering 80%.
Today, every adult can invest £20,000 a year in either a Cash ISA or Stocks and Shares ISA, paying as much or as little as they like in each.
More than half plump for Cash ISAs. They’re particularly popular with pensioners, who use the tax-free interest to top up their state pension.
If you’re in your 70s or 80s when the stock market crashes, it hits both your capital and the income you can safely withdraw. Pensioners with smaller savings pots don’t want that risk.
Now Reeves could push them into investing in a Stocks and Shares ISA anyway.
She’s said to be plotting to the slash the Cash ISA limit to just £4,000 from April 6.
This is speculation at the moment. We’ll know for sure next month, when she unveils her Spring Statement on March 26.
Rumours have been swirling for weeks, after Reeves held secretive meetings with big UK fund managers like Fidelity and Phoenix, where they sprang their plan.
They continued the push when Reeves hosted a second meeting at 11 Downing Street on Wednesday.
It’s not hard to see what’s in it for fund managers. If the Cash ISA shrinks, savers keen to use their tax-free allowance will have to buy Stocks and Shares ISAs instead.
Fidelity sells hundreds of Stocks and Shares ISA funds. It has an online platform targeted at Stocks and Shares ISA investors, Fidelity FundsNetwork.
Fund managers have one strong argument in their favour. In the longer run, shares will work your money harder than cash.
I’ve repeatedly warned savers against leaving too much sitting in Cash ISAs for long periods, and to shift some into shares.
But not everybody wants to do that. And not everybody should.
Investment risk is a personal matter. Reeves should leave the decision to savers. It’s their money.
There’s another problem.
There’s no guarantee that thwarted Cash ISA savers will shift their money into UK shares anyway. Which is supposed to be the idea.
Today, the most popular Stocks and Shares ISA funds are index trackers investing in the booming US stock market, or a spread of international shares.
Popular trackers like Fidelity World Index put just 4% of their total pot into the UK. More than half goes in the US.
If Reeves rolls over to the fund managers she’ll end up boosting Wall Street while doing little for the ailing FTSE 100.
She won’t get the growth she wants. She’ll have been played for a sucker.
But the biggest losers will be Cash ISA savers.
My advice to them is the same. Max out this year’s £20,000 Cash ISA allowance if you can. It may be 80% smaller from April.
