Balls says Isa will continue and hints at raising limits

Balls says Isa will continue and hints at raising limits

Savers were given a boost yesterday with the news that the tax-friendly Isa regime will be extended indefinitely.

The government also hinted that it might increase the maximum amount that people can invest in an equity Isa from the current £7,000 a year. But the annual limit for the hugely popular cash Isas looks likely to stay at £3,000.

Launched in 1999 as a replacement for Peps and Tessas, individual savings accounts have proved a big success. More than 16 million people now have one and almost £215bn has been invested in them, according to the Treasury.

Ed Balls, the economic secretary to the Treasury, announced a package of reforms to the Isa regime yesterday that are designed in part to remove some uncertainty about the future of the accounts. Until yesterday, the government had refused to guarantee that its commitment to the scheme would continue beyond 2010.

Addressing the annual conference of the Pep and Isa Managers' Association (Pima) in London, Mr Balls said: "We will make the Isa a permanent feature of the savings landscape. This open-ended commitment to the Isa will provide stability for savers and certainty for the industry."

Mr Balls added that the pre-budget report later this month would confirm that the overall annual contribution limit for the accounts would continue to be "at least" £7,000. This has raised hopes that the government will bow to industry pressure and raise the annual limits.

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minister also announced that the rules for Peps would be harmonised with those of Isas and that the distinction between "mini" and "maxi" Isas would go. These changes would simplify savings and make it easier for people to understand and engage with the accounts, said Mr Balls. He also challenged providers "to make Isa products cheaper and easier for the industry to provide".

But it would appear that, despite this announcement, the popular mini-cash Isa will continue in all but name. The Treasury indicated that while the detail still has to be worked out, the likelihood was that the cash limit would stay at £3,000.

Fidelity, the largest manager of Isas and Peps, said the announcement was "a clear sign that the government has understood that Isas play a vital role in the development of a long-term savings culture among British consumers". But it would like to see this taken a step further with an increase in annual limits. "The £7,000 Isa limit has never been increased, despite this being a lower amount than for the Peps they replaced," added the company.

The Building Societies Association welcomed removing the distinction between mini and maxi Isas but added that it would be disappointed if this did not include an increase in the annual subscription limit for the cash Isa. The BSA has called for the limit to be raised to £5,000.

The Association of British Insurers said it had been pressing for Isas to be retained and for maintaining the minimum investment. It also supported yesterday's announcement that savings in child trust funds would allowed to be rolled over into an Isa on maturity.

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