Andy Burnham and John Healey are facing calls to reconsider a Labour government policy that will introduce a flat 22 per cent tax on interest earned from uninvested cash held in certain savings accounts. The charge, set to take effect on 6 April 2027, will apply universally to all ISA account holders, regardless of age or income tax bracket, and will also affect ISA savers who are non-taxpayers.
New ISA tax details
The policy, inherited from former Chancellor Rachel Reeves, who Burnham has replaced in No11 alongside Healey, targets uninvested cash held inside non-cash ISAs, such as Stocks and Shares or Innovative Finance ISAs. According to HMRC, the charge aims to 'minimise the opportunity for the lower cash ISA limit to be circumvented, while preserving the flexibility needed for legitimate investment activity within non-cash ISAs'.
Andrew Prosser, head of Investments at investment platform InvestEngine, has publicly urged Burnham to act. 'If Andy Burnham wants to put his own stamp on ISA policy, he should just make it simpler, starting with an early review of the package of reforms due to take effect from April 2027,' he said.
Concerns over complexity
Prosser expressed concern that the new rules, including different cash ISA limits for those under and over 65 and the 22 per cent charge, are overly complicated. 'People are often reluctant to invest because they just don't understand it, so the simpler ISAs are to understand and the easier they are to access, the better,' he explained.
He fears the changes may 'push people away from saving or investing altogether'. Prosser added: 'Stocks and shares ISAs have been around for decades, but many people still think ISAs are just for cash. We need more education about the benefits of a stocks and shares ISA – that you can invest £20,000 a year and the returns are free from Capital Gains Tax and Income Tax, and that you can even generate an income from an investment ISA, which again, is tax free.'
Potential impact on savers
The 22 per cent charge applies to all ISA holders, including non-taxpayers, which could disproportionately affect those with lower incomes. Prosser's comments highlight a broader concern that the policy may discourage saving and investment among the public.
He concluded: 'If more people knew this, I think they would be a lot more popular.' The call for an early review comes as the government prepares to implement the reforms, with Prosser urging Burnham and Healey to simplify the system to encourage greater participation in ISAs.
