As expected, there was very little for cash savers in the Spring Budget, which is a huge blow. Although savings rates have increased substantially since the base rate started to increase in December 2021, the cost of living has increased much faster, so although the pounds in people’s pockets from their savings are increasing, it’s not enough.
ISA allowance to rise from 2024
One glimmer of hope is that although the ISA allowance has been frozen for another year – the seventh year in a row – there is a light at the end of the tunnel. Hidden away in some of the Budget small print was an announcement that from April 2024 the ISA allowance will rise in line with the Consumer Prices Index (CPI). While this is encouraging, it’s convenient that the Government is expecting CPI to have fallen to under 3% by then - so it’s even more disappointing that we’ll have to wait another year to see this benefit.
But there is no suggestion that any other allowances will be amended.
The Personal Savings Allowance (PSA) has remained the same since it was introduced in April 2016 – giving basic rate taxpayers £1,000 of tax-free interest per year and higher rate taxpayers £500. While this appeared pretty generous when it was launched, as savings rates have increased the PSA is being used up with less and less cash on deposit. In April 2016 the top paying easy access account was paying 1.45%, so you would have needed a deposit of £68,966 to breach the £1,000 PSA (assuming you held no other savings accounts). Today, if you were to open the top easy access account paying 3.40%, a deposit of just £29,412 would earn more than £1,000 in gross interest.
The Junior ISA allowance will also remain at £9,000 and there will be no increase to the Lifetime ISA limit, which is £4,000.
The 'starting rate' for savings has been frozen again too at £5,000. This allows those earning less than £17,570 from employment to earn up to £5,000 in savings interest before paying any tax on it. This is in addition to the Personal Savings Allowance.
According to the Times, the freezes in these allowances, plus the income tax thresholds, ‘will earn the Treasury nearly half a billion pounds over the next four years.’
National Savings & Investments - Net Financing Target
As we have reported, NS&I has hiked the rates on a number of it savings accounts and Premium Bonds repeatedly over the last few months. So I was expecting to see an increase in the net financing target.
This target is the amount that Treasury-backed savings provider has been tasked with raising for the Government – and it has been announced that this target will be increased from £6 billion in the current tax year, to £7.5 billion in 2023/24. While this means they need to raise an extra £1.5billion, it’s not as much as I had hoped. During the Covid-19 Pandemic, when the Government needed to raise money to prop up the economy at the time, the net financing target was increased to £35 billion – so this is a tiny increase in comparison.
The reason that an increase to the net financing target can be good news for NS&I customers, and therefore the wider savings market, is that in order to attract more funds, like any savings provider, they need to increase rates to do so.
However, following the flurry of rate hikes NS&I has made to its savings accounts over the last few months, I’m not too hopeful that we’ll see many more rate hikes for the time being. I hope that I am wrong!
While it’s disappointing that Jeremy Hunt has failed to help savers to keep more of the interest they are earning on their savings, this doesn’t mean that you can’t put more pounds in your pockets. Competition in the savings market is still strong, so keep an eye on our best buy tables to make sure you are earning as much interest as possible.
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