Reeves to Cut Cash Isa Allowance to Half Urging Move to Stocks

Chancellor Rachel Reeves is poised to halve the tax-free cash Isa allowance in next month’s Budget, marking a significant shift designed to motivate more UK savers to explore investment in shares. The Treasury is expected to lower the annual cash Isa limit from the current £20000 to around £10000 or just above, although the final figure is yet to be determined. This reform forms part of a wider government initiative to encourage a “shareholding democracy” and broaden participation in stock market investment.

Under existing rules, savers may place up to £20000 per year into Individual Savings Accounts, divided amongst cash, stocks and shares, lifetime Isas, and innovative finance Isas, without incurring tax. The cash Isa, favoured for its simplicity and perceived safety, is among the most popular savings tools in Britain. Reeves and her colleagues in the Treasury now intend to strike a revised balance, suggesting that higher returns might be possible for savers willing to divert funds towards equities.

Lucy Rigby, Economic Secretary to the Treasury, has drawn a parallel with the investment drive seen under Margaret Thatcher in the 1980s, when families were inspired to invest in privatised companies through the landmark “tell Sid” campaign for British Gas. The government believes fresh enthusiasm for retail investing will help not only savers seeking greater returns, but also companies wishing to raise capital and the broader economy seeking private sector investment.

Recent research from investment firm AJ Bell highlights that someone investing £1000 each year in a stocks and shares Isa since April 1999 would now be £50000 better off compared to an equivalent investment in a cash Isa. However, critics warn that this proposed change could undermine incentives for long-term savings. Parliament’s Treasury select committee has urged the government to reconsider, pointing instead to enhancing public financial education and maintaining robust incentives for secure cash savings.

The move has also drawn criticism from over 50 building societies, warning that reducing the cash Isa allowance will not magically transform risk appetite among savers and could make loans to both households and businesses harder to secure. Rigby argues that spreading investment knowledge and cultivating a broader culture of investing is vital, noting a decline in the proportion of adults owning shares since the days of Thatcher.

With the Budget due on 26 November, all eyes will be on Reeves and the Treasury team as they attempt to reshape the landscape of British saving and investment. The coming reform is set to be a defining moment for the country’s evolving approach to financial security and wealth-building.