The SNP has said “the Labour Party must ditch its damaging plans to impose a punishing new tax on savers” – as new research shows the UK Treasury could hit 1.12million Scots to the tune of hundreds, or thousands, of pounds in a new tax raid on household incomes being considered by the Chancellor ahead of the Spring Statement on 26th March.
The House of Commons Library research, commissioned by the SNP and published today, reveals a quarter of adults in Scotland (25%) could be hit by the Chancellor’s plans to slash the Cash Individual Savings Account (ISA) tax-free allowance.
Under proposals being considered by Rachel Reeves, the UK Treasury could raid the savings of 18million people across Scotland and the UK by reducing, or removing, the tax-free allowance.
The Cash ISA was introduced in the 1990s to help and encourage people to save for their future, and is one of the most popular savings products in Scotland.
Currently, individuals can save up to £20,000 in a Cash ISA each year without incurring any tax on the interest earned.
With the best cash ISA interest rates currently at 5%, the research shows savers could lose up to £5,132 in interest to tax over a five year period if the allowance is reduced to just £4,000 a year, or up to £6,415 over a five year period if the allowance is scrapped altogether – two proposals being considered.
At the most recent count, savers in Scotland had a combined £52.7billion saved across the different types of ISA with an average of £39,917 per saver.
The total amount lost to any increased tax on savings would depend on a range of factors including the size of the reduction to the tax-free allowance, how much an individual is able to save, what rate of income tax they pay, and what they do with the money they can no longer save in a cash ISA.
Those who save more would lose more as a consequence of any UK government increase in taxes.
The Labour Party proposals to introduce a new tax on savers comes despite evidence that UK households are already struggling to save as much as families in other European countries.
The House of Commons Library research reveals that the UK has one of the worst rates of saving in Europe.
On average, UK households save just 2% of their disposable income compared to more than 19% in Switzerland, 13% in Sweden and the Netherlands, 11% in France and Germany, and 8% in Ireland.
There is a growing backlash against any move to slash the Cash ISA tax-free allowance.
The Building Societies Association (BSA) has launched a campaign to protect Cash ISAs and has published its own research showing 73 per cent of UK adults with Cash ISAs oppose the Labour government’s plan.
Last week, consumer champion Martin Lewis told the House of Commons Treasury select committee of MPs:
“I’ve already had people telling me they are worried about what’s going on, so they are going to withdraw from Cash ISAs, which is clearly not the right thing to do.”
He added: “I don’t think we should reduce the Cash ISA limit.”
Commenting, SNP Economy spokesperson Dave Doogan MP said:
“The Labour Party must ditch its damaging plans to impose a punishing new tax on savers, which would clobber more than a million Scots and could cost many households hundreds or thousands of pounds.
“This is yet another broken promise from the Labour government, who said they wouldn’t increase taxes on families but are now dipping their fingers into people’s hard-earned savings.
“The UK already has one of the worst savings rates in Europe.
“The Chancellor should be helping and encouraging people to put money aside, not mounting a Treasury tax raid on the limited savings that people have.
“Voters were promised things would get better but under the Labour government the cost of energy, food and living is soaring, the UK economy is stagnating, unemployment is rising, and now the Chancellor wants to slash people’s savings too. It stinks.
“The tax-free allowance for cash ISAs should not be cut and people should not be forced into riskier, or most costly, savings products.
“The SNP will fight to protect people’s savings and press the Labour Party to ditch these plans, which would make people poorer and are yet another symptom of the declining living standards in Broken Brexit Britain.”
