Rachel Reeves has confirmed the tax-free allowance on cash ISAs will be cut for under 65s in a bid to encourage more Britons to invest their savings.
The current £20,000 allowance will be slashed to £12,000 by April 2027.
By doing so, The Chancellor hopes to encourage more Britons to invest their remaining savings in stocks and shares, which will remain tax-free, as she highlighted the UK currently has the lowest level of retail investment in the G7.
ISAs allow individuals to save money without being charged tax on the interest earned. The cash ISA is by far the most popular choice of savings account, with almost 10 million subscribers. In comparison, four million have stocks and shares ISAs and one million have lifetime ISAs. An estimated £69.5bn is currently held in cash ISAs.
In early November, a survey conducted by AJ Bell found a cut to the ISA allowance was the least popular potential budget change among Britons. Only 12 percent of Britons are in favour of the cut, while nearly half oppose this.
In a speech at Mansion House in July, Reeves said she wants “more savers to reap the benefits of UK economic success”, signalling that her reforms could encourage ordinary savers to consider investing alongside traditional cash savings.
The Building Societies Association previously expressed concerns about the chancellor’s plans, saying a cut would be a “sucker punch for savers” and will reduce the funds available for mortgage lending. Meanwhile, others have argued she should have gone further to encourage people to invest.
Tom Selby, director of public policy at AJ Bell, said in a press release that to encourage more investment, Reeves should merge cash ISAs and stocks and shares ISAs into a single ISA product, as this “would remove friction from this decision-making process”.
Previously, Reeves had suggested she was planning on creating a “Brit ISA” which would require a minimum allocation of 20 percent of cash being invested in UK equities. These plans, however, have since been dropped.
