Synopsis: HMRC have updated their ISA statistics with a breakdown of contribution levels for 2011/12. The numbers help to explain why Mr Osborne could be relatively sanguine in the short term about raising contribution limits in the Budget.
Date posted: Thursday, May 01, 2014
The new data gives a breakdown of subscribers by size of subscription, income, age and region. The most interesting data is a breakdown of the spread of subscriptions, which is reproduced below:
Thus in 2011/12 only 7.6% of ISA subscribers invested the maximum and just 12% invested £6,000 or more. The Budget numbers support the view that maximum subscribers are not common. In the detailed Budget costings is a figure of just £5m for the lost revenue in 2014/15 from both raising the ISA ceiling to £15,000 and equalising the stocks and cash limits. Admittedly that number rises to £80m in the following year and ramps up thereafter, but it still pretty small beer for a government with a £108bn deficit in 2013/14.
The rise in ISA tax loss costs – by 2018/19 it is estimated to be £565m – is probably mainly due to an anticipated increase in interest rates. The OBR has this heading towards a 3% base rate by then.
As at April 2013, about half of all ISA investments (about £220bn) was held in cash and the contribution split for that year was 71% cash, 29% stocks and shares. With the higher cash limit from 1 July 2014, the chances are that cash skew will increase for 2014/15, despite current interest rates mostly starting with a 1 (eg 1.5% for NS&I’s surprisingly competitive Direct ISA).
The numbers show that the ISA increase is a cheap crowd-pleaser, but that is no reason to look the gift horse in the mouth. In time interest rate rises could prompt a future government to revisit the ISA cap that the Treasury floated last autumn.
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