Budget 2009: ISA limits may be increased

Wednesday, 15 April 2009 07:55

Alistair Darling is set to use the budget to aid savers hit by low interest rates.

The chancellor is now expected to increase the ISA limit to as much as £10,000 - allowing savers to put more aside without the taxman taking a slice of the interest.

It had been hoped the chancellor will allow basic rate taxpayers escape from all tax payments on savings - but it now seems like a bridge too far.

The increase in the ISA limit - from the current level of £7,200 - would see a maximum of Cash ISA level of as much as £5,000.

It is estimated such a move - if all savers took advantage of the higher limit - could cost the Treasury as much as £3 billion.

Iain Anderson at Cicero Consulting said: "The chancellor could start with doing something for savers and boost the ISA limits.

"The maximum level could go up to £9,200, but it could go up to £10,000."

However, as interest rates are so low, an increase to the amount that can be saved tax-free may be of little benefit.

"They could support income on savings," said Martin Weale at the National Institute of Economic and Social Research (NIESR).

"However, it would not make much difference at the moment as interest rates are so low and it will make it hard for the government when interest rates do go back up."

How soon a change in the ISA limits could happen is not certain.

This year is an exceptionally late budget - as the chancellor's speech is traditionally before the start of the tax year.

A spokesperson for the British Bankers Association (BBA), which is backing moves to encourage savings with interest rates so low, said: "The banks have been trying to encourage savings, so the onus would be on them."

He explained the chancellor could either announce an immediate increase in ISA limits, or announce it for the coming financial year and so give savings providers time to get up to speed.

• Tags:
• economy
,
• isas
,
• news
,
• the budget and pre budget