Reeves Warned: Cash ISA Cut Won’t Plug Budget Gap
Chancellor Rachel Reeves has been cautioned that slashing the cash ISA allowance is unlikely to fill the Treasury’s looming Budget deficit.
The Treasury Select Committee has urged Ms Reeves to think twice before halving the current £20,000 tax-free savings limit, amid intense lobbying from the City.
The proposal had been positioned as a way to nudge savers towards stocks and shares, with the hope of boosting the Treasury’s £2 billion annual haul from tax on interest.
Recent reports show she may also be considering broader measures targeting spending and taxation with new policies.
Yet, the committee insists the measure would probably fail to shift Britons from cash to investment accounts.
The cut had been expected in July, but it was paused after the Daily Mail launched its Hands Off Cash ISAs campaign.
Cash ISAs remain the UK’s most popular savings vehicle, currently holding some £360 billion. Savers can use their annual tax-free allowance for cash, investments, or a mix of both.
Dame Meg Hillier, chair of the committee, said: “This is not the right time to cut the cash Isa limit. I fear that the Chancellor’s attempts to transform the UK’s investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers.”
Shadow Chancellor Sir Mel Stride added: “In reality, this would be a tax raid, pure and simple. It’s little wonder the Daily Mail has stepped in to defend savers through its campaign.”
Building societies have also voiced concerns, warning that cutting the cash ISA allowance would not magically convince savers to take on more risk.
They highlighted that these accounts help fund mortgages and that restricting deposits could push up borrowing costs for homebuyers.
The Building Society Association noted: “A cut to the allowance could have the knock-on effect of making loans to households and businesses more expensive and harder to come by.”
With the Chancellor under pressure, any move to limit tax-free savings could face significant pushback, not just from savers, but from the financial institutions that rely on cash deposits to support lending.
