The City wants an end to cash ISAs, and that would be a mistake.
This is the audio version:
This is the transcript:
Hands off ISAs, I say. And I'm saying it for a very good reason.
Let me get my terminology right. When I talk about an ISA. I am talking about an individual savings account, the sort of thing that is offered to you by your bank, by your building society, or, if you wish, somebody slightly more esoteric within the financial services market. And right now, there's a lot of debate going on inside that financial services market about the future of ISAs.
Now, let's just put this in context as well. ISAs were the successors to a previous type of tax-incentivised savings account. They were introduced in about 2000, and basically, since then, they have expanded in range and size, by which I mean you can put more money into them now than you could ever do in the past. Up to £20,000 a year can be put by you into an ISA account. And there are some other types of minority ones as well. But basically, £20,000 a year can go into an ISA account, and as a consequence, you can enjoy the earnings on the money that you save in that ISA tax-free. And if there is a capital gain on it, that is also tax-free.
Now, let's be clear. There are a lot of people who do not need to save in ISAs. That's because they don't have enough money in savings to ever actually be troubled by the tax liability that they might owe on their savings. You can earn, in the UK at present, up to £1,000 a year on your savings, presuming that you are a basic rate taxpayer, and pay no tax on that income. And for a lot of people, £1,000 from their savings would be beyond their imagination. Those people, frankly, need never go near an ISA.
But these days, with interest rates running at 4 per cent quite commonly, and sometimes more, you can run to the point where you do get that amount of interest a year fairly easily if you have any degree of saving, which is most likely to indicate that you're also older and have probably been middle class or more, and therefore, with hair of my colour, you might have a bit of money in the bank, because if you haven't when you reach retirement age, you never will. So, this is a tax subsidy - and let's be clear about this - to the wealthiest in the UK.
And it's a big tax subsidy. It costs at least £5 billion a year at present. It may be more because interest rates are relatively high still right now.
And there's something like £700 billion in ISAs in the UK.
And maybe £70 billion a year goes in. In fact, in the current financial year we know that £50 billion has gone into ISAs already, and I'm only talking there about the cash ISAs.
So, let's mention this point. There are two fundamental types of ISAs. There are cash ISAs, which simply mean that your ISA is a wrapping around your bank account to mean that you do not pay tax on the interest it earns. And there are also share savings options inside ISAs, which means that you can have a portfolio of shares, invested probably for you by a fund manager, and the income and gains arising on those are also tax free.
How you split that money is now pretty much up to you. There is a lot of freedom about how ISA savings can now be managed. And, to some degree, that's good in the sense that having some savings is important for people's security.
One of the statistics that worries me most about the UK economy is the fact that 70 per cent of people in this country do not have sufficient money to manage a financial crisis in the form of a big bill if it were to come along. The fridge fails, the cooker fails, there's a big household repair bill, the car has got to have a major service well and truly beyond anything that somebody had anticipated, and there is a crisis because the money isn't available. That is a measure of financial insecurity that we need to tackle. We do need people to have sufficient funds to cover the proverbial rainy day.
But ISAs aren't really for that money. ISAs are for the money you can put aside for a while. And again, there are good reasons why people need to put money aside. They are saving for a specific event, or they're just worried about the future. And okay, I accept all that.
Now, I'm going to ignore for the moment the fact that cash savings are not terribly productive when lodged with a bank because banks do not need to have money lodged with them to enable them to make loans to people. That's an issue I've discussed elsewhere. Search the videos that I've made on how money is created, and you'll find more about that.
What I'm worried about is the fact that right now, the City of London is moving against cash ISAs. And overall, cash ISAs are more popular than share ISAs.
In fact, most things are more popular than anything to do with shares in the UK economy because people don't see a lot of reason to save in stocks and shares anymore. And the reason why is, well frankly, the London Stock Exchange is not actually giving people the greatest of options as to how they want to save. They are desperate to have more money come into the stock exchange right now because they want to push up its value. It might already be at record highs at this moment - quite bizarrely, because the world's in chaos - and yet we seem to have this perverse consequence of the stock market at record highs when risk would suggest it should be going down, but they want more money to come in.
They don't want to create more shares for people to buy. They want more money to come in to buy the existing shares because that pushes up the value of the existing shares because demand for them goes up. And that then makes everybody in the City feel very good because they get bonuses on the basis of increasing share prices or increases in the value of the money that they are managing in the share portfolios of people who've got ISA and other such accounts.
It's payday for the City time when share prices go up and they're so desperate for them to go up they're now saying that people should not be allowed to save in cash in ISAs. They're saying the government should not be subsidising that saving.
They're not attacking pension funds, which, of course, don't use ISAs because pension funds give them the boost they want in other ways.
They're attacking cash ISAs because they're a simple product that people understand and want, and which they need, and where they don't want the risks that a share-based saving creates, and, as a consequence, the City hates them.
So, should cash ISAs survive? My answer is yes, and no. Let me explain.
There are some situations where saving in cash is very valuable for the economy as a whole. For example, as I've just mentioned, saving cash in a bank really does not do very much for the macroeconomy because a bank does not need deposits to make a loan.
It does need deposits to become a part of its effective capital if it goes bust when you are at risk, except for the fact that the government does, of course, guarantee up to £85,000 of deposit you have in any bank, including your ISA accounts. But cash does make a difference to building societies.
Building societies do not operate like banks. And they do out. And they do actually rely on the sums that are deposited with them. So, if we remove cash ISAs, one particularly important and long term and long-standing and quite valuable part of the UK financial services sector would suffer some consequences. So, I'm not sure we should be getting rid of cash ISAs offered by building societies because there's merit to them.
That's the yes; we need cash ISAs.
So, why don't we need cash ISAs?
We don't need cash ISAs because those which are lodged with banks are pretty much dead money when it comes to the macroeconomy.
I have a much better use for that money. For a long time, I've argued that if people want to save in an account guaranteed by the government, which is what almost all ISAs are, then they should do something with that money that provides a benefit to the government in exchange for both providing the guarantee and providing the income tax-free. And that something is in my opinion, funding social investment.
That social investment could be in housing, it could be in green energy, it could be in new transport, it could be in new schools, it could be in better hospitals, you name it, we need money to fund infrastructure in this country.
And I've already mentioned a key number. To December 2024, £49 billion, near enough, £50 billion of money went into cash ISAs in the UK in a single nine-month period. The implication is that we will this year actually have record deposits in cash ISAs of in excess of £70 billion.
And think what you could do with that money if it was made available for social investment, which is what I want.
This would be easy to arrange. Banks could be required to act as agents for ISA accounts, which are invested in government bonds with a guaranteed rate of return, very similar to what frankly National Savings and Investments already provide and which you might want to look at except they don't provide an ISA account, as far as I know, and that money could then be used for social purposes.
The government would have available to it a pot of money for investment, quite independent of taxation, and you would understand that your savings were being used to create a social return on your behalf and on behalf of your children, and your grandchildren and whoever else you wanted to benefit in the community in which you live.
For which reason, I'd even suggest that these ISAs should, for example, have an East Anglian ISA or Scottish ISA or Welsh ISA or South West England ISA, or whatever you want. Have a Stoke-on-Trent ISA if it's necessary, I don't care.
My point is this: the funds should be saved in a way that will help identify the benefit for the community in which the person who has saved wants it to be seen.
And that, to me, is vital because we need to recreate a relationship between saving and its consequences, which should be a capital investment in the community. If we changed ISAs - cash ISAs - excluding those which are used by building societies to support the investment by young people in the communities in which they live by buying homes - if we required that all other ISAs were saved in the way that I say, we could funnel lots of money into the types of investment I've already mentioned and improve the well-being of the people of this country.
I don't want ISA money to go to the City of London because, frankly, all they're promoting is a Ponzi scheme, which will, at some point, inevitably crash because there isn't the fundamental value in the stock market that already is supposedly in existence. I believe it's already overvalued, although those in the market will claim otherwise.
I do want to create investment in real things and not in paper-based financial products, which is all that the City have to offer.
If you want to invest in real things in your community, you would want ISAs reformed so that you could save in the way that I suggest.
If you do, then I've got a call for action. Write to your MP and say could they please promote ISAs that are used to fund government investment in social infrastructure of the sorts I've mentioned in this video. It's something you could do now, and it's something that would make a difference because MPs need to know that people want to do this.
You can help change the world. It's a small thing. And yet, because there are so many people who do save we could release billions and billions to make the world a better place. And that's got to be worthwhile.
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Cash ISAs may not increase in value – but neither do they go down in value.
As long as the underlying value is guaranteed then I would be very happy for my savings to be use to fund infrastructure. But with zero risk to the capital.
That’s what the the state guarantees with cash ISAs now – so there is no greater cost to it by offering that guaranteee for that reason
The City knows how and when to stick the boot in to its advantage – the same City whom Rachel from Accounts is relying on to drive economic performance.
All I can say is, what a bunch of opportunists.
Does the City think most of the funds going into cash ISA would go into stocks and shares ISAs instead, so they could charge fees and commissions? I’d be very sceptical about that. A cash savings account is very different to a stock market investment. Not least, you get back what you put in. And if they wanted investment risk, a pension contribution would probably be a better bet.
Rather I expect most savers would just put their cash into non-ISA cash savings accounts, as they have always done, at NS&I for example. Or just not save at all.
I agree with you
I’ve got a cash ISA – life too busy at the moment to spend so might as well do the spending in a few years when have more time and the money retains its today value roughly.
But I’m wondering where the banks get their money to pay the interest to me from. If the banks themselves are buying government bonds and doing it that way then the investment in central government you require is already happening. Government can send that down to local and regional authorities by calling it levelling-up funding perhaps.
They get it from redirecting the income of those who sacrifice it to them by paying interest to you
That’s it
This is a redistribution
that’s all
So, while Deposits do not fund Bank Loans, the interest paid on Loans funds the interest paid on Deposits (plus a little on top for the banks themselves)?
Go to reality here – not money
People worked to create value
They could not have the ebenfit of that value as they paid interest
You get that vakue instead
Banks take some for their staff
Sometimes thinking what really happens helps
Are you saying that when a government issues a bond, it sacrifices the income of tax payers to pay the interest on the bond to people like me? Makes sense I suppose.
No, you asked about banks
People saxcrifice their income to pay banks
If you save you get the benefit of what they would otherwise have consumed
I’d suggest public shares are more like the world of art where returns aren’t guaranteed but pushing up prices serves to inflate existing wealth.
Traditionally shares being valued relative to dividends expected made sense as that represented the value returned to the owners by underlying business activities. Some shares now, however, given sky-high valuations to companies that have never turned and may never turn a profit. Execs get paid bonuses for actions which achieve a higher valuation, so in some cases they may be worse than a Ponzi scheme as the rewards are not even paid out to the investors.
Meanwhile, that inflation distorts business priorities, promoting short-termist actions like extreme cost-cutting over investment on long-term growth so shareholders can secure a new high score on their valuation.
Now, I’m aware that those valuations on future potential are key to investing in companies in funding rounds and support growth because the influx of money in an inflated funding round provides more operating capital. Public shares lack this quality.
Perhaps the view is that capital gains takes some of those gains and supports the economy, but then you might argue that capital gains are currently too low, and also insufficiently directed back to support future business growth.
Yes. The ‘rational’ behaviour for executives is to run a series of companies with sawtooth-shaped performance… collecting bonuses until the inevitable crash, then moving on to the next company they can victimise. Eery crash destroys lives, and value for Uk plc. It’s utter madness.
It seems to be already happening and we (police Companies House, Action Fraud, you name it..) don’t do anything about it.
https://www.theguardian.com/society/2025/feb/20/the-cannabis-farm-scandal-how-a-rogue-lettings-agency-destroyed-countless-homes#img-1
Note how the main crook appears utterly invulnerable, and how none of the enforcement/regulatory bodies seem to lift a finger. Richard has mentioned the utter uselessness of Companies House. This is a horrible example.
That’s the story behind “just a bit of weed” and our current version of “business friendly” politics. Ordinary SMEs left to sink, while crooks flourish. All doing very nicely thank-you, in today’s Britain.
I have an ISA but at the moment I am paying into a regular savings account as the interest is better and I wish that I had enough savings to need the tax exemption.
BUT I am with the Ecology Building Society that acts as a ‘traditional’ building society, ie it doesnt have its own sort code and its money sits in banks. Many of the remaining societies are in effect banks so can create their own money.
Again I suggest that what is needed is a cash ISA ‘product’ that any institution can offer – Post Office, National Savings, Banks, Building Societies etc where the deposits can either be recycled into the communities where the deposits are made and/or where the account holder lives by the institution offering the product OR through some sort of Government run institution, possibly what used to be the Public Works Loan Board to provide funds for investment.
You get the idea
I think you correctly identify two important things. First, if rates are high (as they are now) people want to hold cash not other securities… and it is important for folk to build some sort of cash cushion against a rainy day.
Second, that this has implications for stock market prices and City profits. Without new money stock prices stagnate as do fund managers’ profits. Odd that the City folk, normally staunchly in favour of individual choice don’t like it when it hurts their earnings.
On the other key issue you raise – directing savings into real, important investment projects I am torn. It is not necessary for these savings to be diverted into much needed investment projects – the government could (and should) just identify what is needed and get on with it. However, I do accept that we live in a world where “household economics” is the only way money is understood by most p[eople and, in this world, the State should be offering a better suite of savings products to individuals. NS&I is (in my view) pretty good…. but could offer more if the government wanted it to.
PS You mention NS&I – in fact they DO offer ISA accounts. They currently pay 3.5%.
Thanks
And the NS&I offer a Green bond which sounds like a good idea until you see the interest rate is only 2.95%. Two questions arise:
1. Would such an investment actually increase what the government spends on green infrastructure or is it just a claim for PR purposes?
2. Why is the interest so low that it discourages investment in green infrastructure?
I checked this
I think it is PR
Thank you and well said, Richard.
The leading lights in the City know the game is up for the square mile, the UK even, and need one last shot, perhaps before retirement, if they are thinking about themselves, usually the case.
The City has been pressing for this for years, but the Tories did not want to alienate their base at large. New New Labour is eager to please.
At a capital markets conference in Paris last week, a former head of the IMF and leading City lawyer argued that the City remained Europe’s banker and should be allowed access to the single market. The soon to retire lawyer suggested EU regulators could help supervise City firms. No EU politician or regulator will accept that.
And quite rightly so
Great idea.
A couple of thoughts…
1. Is there any risk to Building Society savings, if the proposed “gov” ISA proves very popular?
2. To promote this idea (and others) – lateral thinking here – we need to think of an “omnibus” question that the gov/public investment ISA is the answer to?
Eg:
Q. How can we find the capital to fix the sewers (without pumping so much money through the system that it overflows and causes inflation)?
(Note the various bits of MMT tied up in that question!)
A. By encouraging people to save tax free with the government so that money, that is ALREADY in the system, can be put to work, rather than just sitting lazily in storage in a bank.
Q. So how would we DO that?
A. The government could offer State-guaranteed tax-free cash ISAs, and you could choose one (the Clacton ISA just to pull a name out of nowhere) that would allow people with spare cash, who say they want the best for Clacton, to invest in Clacton’s future. (What do you think of that, Mr. Fa***e? Why not sell some of your wretched gold and DO something for Clacton for a change, you globe-trotting grifter! Sorry, got carried away there for a moment.)
I can see that provoking a fruitful omnibus conversation (not that omnibus passengers have spare cash for savings, they are part of the cash strapped 70%, but I hope you get the idea – its still relevant to them if it diverts the savings of those who DO have spare cash into improving the local NHS hospital or GP surgery).
As the journalists DON’T ask those omnibus questions then WE have to inject them into public discourse.
The fascists do this all the time and it’s very effective. They inject popular simple questions into public discourse. Then they provide terrible answers.
My lateral suggestion is that some of our effort in this blog should be directed to discovering and creating good omnibus (or business class if that’s where we travel) questions (to which we already have good answers). The populists are way ahead of us in that area, it’s their answers that are so dire.
Reactions?
I like it
Now, how?
You come up with the videos like this ISA one. We come up with the real life questions we think our demographic are asking (mine is big deprived pre-war council estate plus some middle class friends who live elsewhere, from my professional past, and some who are a bit vulnerable to the more sutle) to which the video is the answer.
The tricky bit (maybe Trusk or Reform could help us here) is injecting the relevant smart questions into public (as well as private) discourse till lots of people are asking them.
For that we need Cambridge Analytica to steal personal data on an industrial scale, a social media channel (Murphy Social), a newspaper or two, and some TV & Radio channels. Plus donations for about 650 MPs (£5-10k per MP, + a board position for when they leave politics).
As we don’t have any of that, we need to discuss alternatives, like what chat shows to ring, how to use whatever social media we are on, but above all, how to create good questions, how to respect our audience, NEVER to call the audience stupid (“that bigoted woman” – Brown, “the deplorables” Clinton, “that St George flag & white van” – Emily Thornberry), how to write to our MP in a way that understands how THEY tick, so they might listen (what question might my MP be asking, have I got answers?), how can I share my real world “experience” without sounding like an “expert”.
I am going to muse on all this
NS&I do indeed offer cash ISAs – https://www.nsandi.com/products/direct-isa although only at 3.5%. You can get 5.05% with another provider at the moment.
If the Government adopted your excellent idea, because they would be building infrastructure that would provide a positive return for everyone, they should be able to offer a better rate on the NS&I cash ISAs to be more attractive. Yes commercial providers will squeal about “unfair competition”, but they can cope.
It is so frustrating that they will not offer market rates
As time passes and events unfold, the more I see the City as a growing negative for the UK. I increasingly wonder why we, the general public, put up with their machinations. Am I alone in this?
No
A new film is coming on this issue, I know
Hopefully its like “Inside Job” – I watched it earlier this week as it is due to be taken off Prime in the next few days. Although I had watched it when it was first released, I couldn’t help but be shocked again when it was explained (really well) how the banking industry destroyed the economy and the lives of millions across the globe. I can’t help shake off this feeling, but its almost like we’re back in 2007 just before a big crash.
Thinking about it a bit more I will go back to my old idea of a range of ‘National Savings’ products to firstly take money away from the Stock Market eg Pensions, Index Linked savings of various sorts etc.
I would also suggest that as in WW1 &2 we need some sort of ‘savings drive’ or do what Mercury Provident used to do – yes I now know a lot more about Steiner than I used to but I see the merits of the idea, so you can accept a lower rate of interest if you wish to support certain projects.
Richard I am sure you wouldn’t mind me putting a few extra hard-hitting nuggets into the letter to my MP, who is after all in the current Labour cabinet. Here is what I wrote:
I am writing to you, my Oxford East MP, to say that, without raising taxes or making swinging cuts, there is a viable solution readily available to you to provide investment capital. This plan would reassign ISA savings to provide the funds we so desperately need to build new homes, invest in the Green New Deal, and rebuild our crumbling UK infrastructure. Please pay very serious attention to this call for positive action for a financial rescue plan as proposed by eminently credible economist Richard Murphy. The UK public are thoroughly sickened and depressed by this Labour Government’s relentless repetition of the questionable claim that supposedly: “there’s no money left”.
Could you please use your elevated position within the current Labour Party Cabinet, as Minister of State for Development and former Chancellor, to promote a new incarnation of the ISAs that will, in future, be partially or exclusively dedicated to providing capital for government investment in socially important infrastructure of the type identified above. This is an urgent and vital proactive step you could put in place immediately to raise billions of pounds in order to fulfill Labour campaign promises regarding government investment, without waiting years for the illusive potential of future ‘growth’. It would be a grotesque waste of money to misdirect such funds into our already bloated City of London financial market stocks that function as little more than a dysfunctional ‘Ponsi’ scheme!
Our Labour Party representatives need to recognize that their abandoned campaign pledged investment is an urgent priority that can no longer be postponed. Constantly blaming the last government, with the ominous ‘black hole’ excuses, will not secure reelection if Labour continues to blindly ignore flagging public support for the current Chancellor’s irrelevant ‘balanced budget’ priorities that are now putting jobs at risk. Do not expect the public to forgive the targeting of the poorest in this country, while the interests of the wealthy remain untouched. I don’t doubt that another runway at Heathrow is welcomed by the jet-setting elite, but it will not benefit those who cannot afford to buy food as ordinary people struggle to cope in this economic crisis.
The bizarre pretence that our government is incapable of funding public priorities, as required by the population, is being comprehensively exposed as a dirty little lie! The fallacy of our reliance on taxes to provide essential funding in a fiat economy is being increasingly disproven by events. The Covid crisis was just the most recent example of how money in our fiat currency is injected into the economy under direct instruction from the government as required. Our government has always managed to find the money to support conflict, just as they have in Ukraine. Meanwhile the Labour Party have destined millions of UK children to wallow in poverty, as many go hungry and our pensioners freeze to death!
It has always been within the power of our government and the current Chancellor, Rachel Reeves, to instruct the Bank of England to drop the interest rate, a move that could halt spiraling rents, as well as lower debt and mortgage payments. This would liberate the cash ordinary people need to spend on everyday items, and would in turn boost our economy providing the desired growth. Reeves must also demand an end to the Bank of England’s destructive quantitative tightening program of extracting money from the economy against the best interests of the British people.
It is time to finally address the unmet needs of those who have been so cruelly betrayed for decades and to whom the Labour Party continue to deny EU free travel rights, before committing those young people to function as cannon-fodder on a European battlefront! Please do not reply with the customary form letter that disgracefully doubles-down on the Labour Party’s: ‘tough decisions’ – ‘not our fault’ – ‘black hole’ – ‘no money left’… abysmal, deceptively fabricated excuses! Just like the ‘Emporar’s New Clothes’, fewer and fewer people will be prepared to accept these lame excuses in future.
Thanks!
Isn’t this what Gary Stevenson has been warning about? This appears a concerted attack by the wealthy city to both prop up asset values for themselves and to appropriate more for themselves through financial shenanigans
The government could have a lot of money for social investment if it allowed NS&I to “distort the market”.
NS&I do offer Cash ISA’s https://www.nsandi.com/products/direct-isa, unofrtunately the interest on them is much lower than you can get with commercial institutions, which to my mind is madness when the you are lending to the government and they pay bond holders more.
I have never had a cash ISA but will come in handy as a short back stop as we are moving into rented for a while, while we decide where to live.
I thought it was sensible previously when you could save, I think, £4,000 pa. £20,000 pa only ever benefits the richest.
If you can afford an ISA you don’t need one – and you probably already have a SIPP.
ISAs generate bonuses for bankers and fees for tax avoidance advisors
Ring fencing income (from ISAs or anything else) is a bad thing and will lead to squabbles over who gets what – more fees for lawyers.
Buying shares (with ISAs or anything else) isn’t “investment” – it is gambling – it generates fees for bankers, pushes up share prices and does not provide me with capital to invest in making and selling more widgets.
Government spending and investment are political decisions – confusing them with taxation is is a bad thing.
Stops using tax as an incentive for anything.
Use spending, not tax breaks, if you want to incentivise people to do certain things – subsidise food production, subsidise farmers to look after the countryside, invest (i.e. take a share in) industries you wish to expand in the national interest.
Tax does what it does – it keeps things under control.
Tax can create a fairer society by ensuring that those with most, contribute most – and that people who work keep more money in their pockets to spend.
See, I didn’t even mention LVT or landvaluetax.co.uk!
I hate to remind you, but you did
And I have never seen the reason for a SIPP