Whilst not a Budget, it was hoped that there would be some good news announced in the Autumn Statement that would help savers. But sadly, the help was minimal.
Personal Savings Allowance (PSA)
While there was no pre-statement speculation that the PSA was due for an increase, it’s really disappointing that there has never been any suggestion that this is due for a review.
Effectively, ever since its inception in April 2016, it has been forgotten – and has become yet another stealth tax robbing savers of precious interest.
The PSA allows basic rate taxpayers to pay no tax on up to £1,000 in savings interest, whilst higher rate tax payers can earn £500 a year tax free (this is interest earned outside of an ISA – interest earned inside an ISA is always tax free, regardless of the amount). Additional rate tax payers don’t have a PSA at all.
But because the PSA has remained at the same level since inception, it is no longer fit for purpose – with interest rates so much higher it’s almost irrelevant now.
In April 2021 if you were earning just 0.45% on an easy access account, a basic rate taxpayer could have earned tax free interest on a deposit of more than £200,000. But fast forward to today and you can knock a zero off that figure. If you are earning 5%, just £20k will see the Basic Rate Tax PSA fully utilised – for higher rate taxpayers, it’s just £10,000!
Individual Savings Accounts (ISAs)
The biggest disappointment is that the government has failed to increase the ISA allowance by inflation from April 2024. Buried in the budget documents in March earlier this year, was a suggestion that after a freeze for seven years, the ISA allowance could finally be set to increase from the new tax year, in April 2024.
Unfortunately, that appears to have been brushed under the carpet and in the detailed report following the Autumn Statement this week it clearly states;
“Individual Savings Accounts: maintain subscription limits at current levels for 2024-25 for Adult, Junior, Lifetime ISAs and Child Trust Fund.”
With interest rates rising so much over the last couple of years, this is a real blow considering that the Personal Savings Allowance has been ignored too – so cash ISAs are so much more important again for those trying to shelter some of their cash from the tax-man.
On the plus side, there have been some simplifications to ISAs that have been announced.
Allowing multiple ISA subscriptions: People will be allowed to open and pay into multiple ISAs of the same type in a single tax year. Currently people can only pay into one of each type of ISA every tax year.
Partial transfers allowed: Partial transfers of ISA funds in-year will be allowed, rather than being forced to transfer the whole amount of your current tax year ISA. Why was it previously a rule that while you could make partial transfers of old ISAs, you’d have to transfer the current tax year’s ISA entirely?
Harmonise ISAs to those over 18 years of age: The minimum opening age for adult ISAs will be 18. This doesn’t appear to be such good news for younger savers, as at the moment a 16-year-old can open an adult cash ISA.
With the exception of the last point, anything that can make ISAs simpler is welcome – and it will be particularly helpful for those opening a fixed rate ISA, as in many cases if you hadn’t fully funded immediately, you may well have been unable to maximise your allowance later on in the same tax-year, otherwise you would have fallen foul of the rules of opening more than one cash ISA in one tax year (unless it was a portfolio ISA!).
Complex rules means that people worry that they’ll make a mistake, so they may decide to avoid altogether.
With interest rates rising so much over the last couple of years, the cash ISA is essential again for those trying to shelter some of their cash from the tax-man, which is why it’s so disappointing to find out that the proposed increase to the allowance is not going ahead after all, leaving the allowance at £20,000 since April 2017 – yet another stealth tax!
National Savings and Investments (NS&I)
Another hope for savers was that the net financing target for NS&I would be increased, meaning that the state backed bank would probably need to raise rates in order to attract a higher target amount.
The Net Financing Target is the measure of the net change of NS&I funds, meaning total inflows from deposits, retention of maturing monies and capitalised and accrued interest, less the total outflows from withdrawals and interest or Premium Bonds prize draw payments. A positive Net Financing figure represents a positive contribution to government financing.
Unfortunately, although there was plenty of press speculation that the amount of money the government is asking NS&I to raise was to increase, this has not been the case at the moment. The target has remained at £7.5bn with a £3bn leeway either way, disappointing considering NS&I raked in £7.7billion of savers cash in September alone according to the Bank of England's Money and Credit report, fuelled in the main by its market leading 6.2% one-year fixed rate bond, which was available for five weeks.
This is the biggest influx of cash for the Treasury-backed bank in one month since August 2020, when savers funnelled in £9.8billion.
If NS&I continues to attract more cash, it’s possible that they may need to adjust the interest rates downwards, applied to some of the savings products, in order to stem the flow. The latest results from NS&I has shown that at the half year point, NS&I has taken in a net amount of £9.8 billion so still within the target range of £7.5bn +/- £3bn either way.
Of course, although there were several rate hikes to the Premium Bond prize fund and other variable rate accounts earlier this year, there’s not been anything for a while, so they are far less competitive now. For example, the easy access Direct Saver is paying 3.65% AER, whilst there are loads of easy access accounts in the rest of the market paying far more – in fact as much as 5.20%. As a result, there may be a natural ebb and flow which could see NS&I stay within its target range, without the need for any rate adjustments.
All in all, it’s pretty disappointing to see that there has been no good news for savers – other than a simplification to the ISA rules. However, with savings rates so much better than they were even just a year ago, remember that the simplest way to help yourself is to review your savings account and switch if you can do better elsewhere.
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