What's behind a 'dash from cash' to stocks and shares?

One of the many challenges facing the chancellor as she approaches her second Budget next month is to boost investment.

- SEAN O'GRADY

Rumours are that she's considering reforming the tax-free Individual Savings Account (ISA) regime to encourage savers to put more money into shares, which broadly support investment and growth, and less into simple deposit accounts. As with most such moves, there are pros and cons, potential winners and losers, and political as well as financial risks...

What happens with savings now?

You can invest up to £20,000 tax-free in a single year, and allocate that in any proportion between a cash ISA and a stocks-and-shares ISA. (But with a ratchet - you can’t move large sums in and out as with a bank account because the limit is on how much you pay in.) All interest and any capital gains are tax-free.

There’s also a Lifetime ISA scheme, of £4,000 each year, until you’re 50. You must make your first payment into your ISA before you’re 40. The government will add a 25 per cent bonus to your savings, up to a maximum of £1,000 per year. The Lifetime ISA limit of £4,000 counts towards the (current) £20,000 annual allowance, and can be invested equally flexibly.

There are other tax breaks available to individuals, notably pension schemes and holdings of agricultural land. Primary residences are the main vehicle for most British people to build up capital tax-free. The rich can also use complex trusts and offshore accounts to shelter their wealth.

Why change the ISA scheme?