A cross-party group of influential MPs has issued a stark warning to Chancellor Rachel Reeves over reported plans to slash the annual cash Isa allowance.
At present, Britons can save up to £20,000 a year in an Individual Savings Account (ISA) without paying tax on the interest.
Cash Isa Cuts Under Fire: MPs Clash with Reeves Over Saver Penalty
However, proposals under consideration for the upcoming Budget could see this figure halved to £10,000 in a move aimed at encouraging more investment in UK shares. But the Treasury Committee, led by Dame Meg Hillier, says the approach is misguided.
“This is not the right time to cut the cash Isa limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions,” said Dame Hillier
Many savers are already feeling the pinch from high living costs and stagnant wages. Reducing their ability to shelter savings from tax could make matters worse.
MPs: Don’t Punish Savers to Push Stocks
The committee’s latest report makes it clear: changing Isa rules alone won’t reshape Britain’s investment culture. It argues that savers aren’t likely to jump from cash Isas into stocks and shares simply because the cash route has been curtailed.
What’s needed, say MPs, is better financial education. Helping people understand how investment works and what risks they face will do more to grow stock ownership than slashing savings incentives.
For those exploring better places to grow their money, check out our guide to the best savings accounts in the UK, which compares top rates and account features to help you make an informed choice.
Mortgage Market Could Also Take a Hit
Cutting the cash Isa allowance wouldn’t just affect individual savers. The knock-on effect could rattle the wider economy, particularly the housing market.
The Treasury Committee warns that building societies, which rely on retail savings to fund mortgage lending, would be squeezed by such a cut. A drop in available cash deposits would undermine their lending ability, potentially pushing up mortgage rates or tightening loan availability.
This, they say, would threaten the “stability and competitiveness” of lenders – with consequences for both borrowers and the broader financial ecosystem.
What Is a Cash Isa?
An Isa or Individual Savings Account lets UK residents save or invest without paying tax on the returns. Since 2017, people can split up to £20,000 annually across different types of ISAs – including cash, stocks and shares, and innovative finance.
Experts Echo the Warning
Industry voices have echoed the MPs’ concerns, arguing that the chancellor’s focus on steering savers into the stock market could backfire.
“While the chancellor’s policy goal of boosting retail investing in the UK is the right one, slashing the cash Isa allowance would be a clumsy and ineffective way to go about it.
All this would do is hardwire the barriers that currently exist between cash Isas and stocks and shares Isas, when behavioural research tells us tearing these barriers down and simplifying the landscape would be the most effective way of helping more people invest for their financial future,” said Tom Selby, director of public policy at AJ Bell.
When asked about the committee’s findings, Chancellor Reeves responded cautiously but didn’t rule out changes.
“My understanding is that the report says that changes to ISAs shouldn’t be made in isolation of other policies. I’ll be setting out any tax changes in the budget in November. And of course, we need to get that balance right.
We want to help people to be able to save for mortgages, but we want people to get better returns on the money they’re investing. To put money in an Isa or indeed in a pension means that you’re sacrificing spending today to save for the future.
At the moment, often returns on savings and returns on pensions are lower than in comparable countries around the world, and I do want to make sure that when people put something aside for the future, they get good returns on those savings,” she said.
Final Word: Reform, Not Restriction
There’s no doubt the UK has work to do when it comes to encouraging smarter investing. But the emerging consensus is clear: punishing savers by trimming the cash Isa limit isn’t the way to get there.
The Treasury Committee’s message is sharp and timely, fix the foundations first. Build a financially literate nation before moving the goalposts on tax-free savings. With Budget Day approaching, all eyes will be on the chancellor to see if she listens.
