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MONEY COMMENT
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As the annual budget approaches, calls for the Chancellor of the Exchequer to rethink his plans to reduce the benefits of saving in the tax-efficient ISA are getting louder. Now the Abbey National has joined in the chorus of disapproval urging him to simplify the rules and increase the amounts we can save. Gordon Brown is due to make his annual budget speech next week and the Abbey National wants him to use the opportunity to reconsider his plans to cut the amount we can save. Instead of reducing the ISA allowance from £7,000 to £5,000 - including restricting cash savings to just £1,000 - as planned in 2006, they want him to raise the limit to £8,000 for any kind of saving. They also want more flexibility and simplicity. At the moment we also have to contend with the differentiating Mini and Maxi ISAs which, the Abbey says, only leads to confusion. People should be allowed to invest their allowance in any combination they choose whether in cash or shares. They say Cash ISAs are particularly popular with the public and removing the restrictions on how much and where people can put their money would least encourage them to save more cash. Personally, I think the Chancellor should reconsider even further. In April the 10% tax credit on dividends is being removed thus reducing the benefits for basic rate taxpayers. It's the low and middle income people who need the most encouragement to save, so reducing the benefits doesn't really make sense. Generally speaking, we also can't transfer shares directly into an ISA without having to sell them first and then buy them back inside the ISA. We've already paid stamp duty once so why make us pay it again? The Chancellor should do away with the Minis altogether, retain the tax credit benefits currently in place and let us transfer shares we already own at no extra cost. And, yes, I agree with Abbey National - he should increase the amount we can save rather than cut it. This week we've had the Penrose Report into the near-collapse of Equitable Life followed by a scathing Commons Report on other insurers on how they missold and mismanaged mortgage endowments - both of which have cost policyholders billions. The Chancellor needs to do something very quickly if we're not to lose our faith completely in saving. Being more generous with ISA benefits would be one way of doing it. Check out our ISA Centre; Fill Up Your ISA Before It's Too Late