Young people have been left feeling incensed after the Chancellor announced the annual cash ISA limit has been reduced from £20,000 to £12,000 for under 65s.
Rachel Reeves made the change as part of a raft of measures in this year’s Budget and claimed that it was to encourage Brits to invest in stocks and shares.
However, young people have expressed their anger online at the decision, with many feeling as though they have been forced into making choices with their money by the government.
A post on X that captured the feeling of many – receiving over 2,000 likes – read: “Granted this change is being introduced to encourage younger people to invest in a stocks and shares ISA but that decision should be yours and informed by your risk appetite, not changes by gov.”
Asked about this, David Miles CBE, professor of financial economics at Imperial College Business School and a member of the Budget Responsibility Committee of the Office for Budget Responsibility (OBR), told The Londoners: “I mean that’s true because if you really were determined that you were going to put £20,000 in and you want it all in cash, well you’re not going to be able to do that without paying a little bit of tax on the extra £8,000 – so yes it will affect people’s decisions.
“I think there was an element of the thinking that if people are saving for the longer term that actually a lot of people perhaps were using cash which historically has generated a lower rate of return than some of these other investments like shares or government bonds.”
Miles said that he understands the frustrations of young people who feel as though they have been deprived of a mechanism that would allow them to save money away without the fear of it depreciating in value, but argued savings can indeed lose their value in real terms.
He said: “If you’re really concerned and simply don’t want to lose any of this money, then putting it in cash in some sense guarantees that – but it doesn’t quite guarantee it.
“In 2022, the inflation rate in the UK was not far off 10% and at that time the interest rate that you get on most ISAs was one or two per cent, so although you weren’t losing the money value in pounds by the end of the year, if you’ve been paying 2% interest, but prices has gone up by 10%, you’ve lost 8% on your investment.”
Another announcement the chancellor made in the Budget was that training for under-25s will be made completely free for small and medium-sized businesses, a change that Miles hopes will have a significant effect.
“It’s been a real issue that since COVID in particular, youth inactivity has gone up a lot in the UK and that’s in nobody’s interest really,” he said.
“My own personal view is that training for people who for various reasons might not find university the right thing to be doing is extraordinarily valuable.
“The problem the government inevitably has is that with so many demands on the government to spend more on this and that the amount that’s been allocated to this is limited, but I think the aim is admirable.”
The Treasury were contacted for comment.
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