Daniel Hilton
The Spring Statement brought welfare cuts, public sector productivity drives, increased defence spending, a new crackdown on late tax returns and much more.
However, strikingly little was said about reforms to the cash ISA allowance, despite weeks of speculation prior to the fiscal event.
Rachel Reeves has now confirmed that her team are looking into changing the cash ISA.
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The chancellor told the Treasury Select Committee on 2 April that she thinks reforming the cash ISA would be “worthwhile”, stating: “That’s what we’re [the Treasury] looking at at the moment.”
While Reeves said she does “recognise the importance of cash for a lot of people,” she justified possible reform because “already, you can save in a savings account and some of that is tax-free, the interest on that is tax-free, and also we have got the ISA limits”.
The chancellor confirmed she is keen to “look at the balance” between cash and stocks and shares ISAs.
“I think sometimes it’s a disservice to people saving. If you think about the inflation we’ve experienced over the last few years, you’ve actually seen an erosion in the value of your savings in real terms,” she added.
The confirmation that Reeves’ camp are seriously looking into cash ISA reform will dismay some savers who prefer to keep their cash outside of the stock market as the prospect of losing a large chunk of their tax-free allowance could leave them at greater risk of being taxed on savings interest.
However, while rumours have been circulating that Reeves plans to cut the cash ISA limit to £4,000, there is no guarantee that this particular measure is what is being explored by the Treasury.
What has been said about cash ISA reform?
It was first reported in early 2025 that Rachel Reeves was being lobbied by some figures in the City to create a £4,000 annual cash ISA allowance. Currently, the overall ISA allowance – which applies to all types of ISA – is £20,000.
Campaigners suggested the move would encourage more people to put their yearly tax-free ISA allowance into a stocks and shares ISA in a bid to boost investment in UK equities.
This boost would be welcome as the UK stock market remains unloved compared to its peers in the US and many companies are even favouring the New York Stock Exchange over London.
When questioned over the potential allowance cut in February, Reeves said: “It’s really important that we support people to save to achieve their aspirations.
“At the moment, there is a £20,000 limit on what you can put into either cash or equities [ISAs], but we want to get that balance right.
“I do want to create more of a culture in the UK of retail investing like what you have in the US, to earn better returns for savers.”
It was expected that this measure would be announced in the Spring Statement, but, in welcome news for savers, it emerged that a final decision for the future of cash ISAs would be delayed until at least after the Spring Statement.
After the Spring Statement did not announce concrete reforms to the cash ISA, Chris Rudden, head of investment consultants at Moneyfarm said: “We’re pleased to see that the Chancellor kept her word and left the cash ISA alone.”
He suggested the government ought to “come up with a solid framework for how people can invest their money into growth projects, without taking undue risk and in a way they can understand”.
“Simply pushing people into stocks and shares ISAs would probably lead to more people investing in global equity markets. Even if they bought listed UK equities, the money would only go to other investors, not to the companies themselves. So, half of the solution seems to still be missing,” he continued.
When could cash ISAs be reformed?
There has been no official confirmation that cash ISAs will be changed, however recent talk by the chancellor and her Treasury team make it clear it is certainly something that is being seriously considered.
As mentioned above, there was lots of noise that the cash ISA could be reformed at the Spring Statement, but this did not happen.
As the new tax year starts on 6 April, the full £20,000 cash ISA allowance is likely to stay in place for the 2025/26 year as any changes to the nature of the cash ISA would require legislation to be passed in parliament.
Reeves has previously stated that she is committed to only one large fiscal event a year as a way to maintain stability in the economy and the markets. This large event is the Autumn Budget, usually held in late October or early November.
With knowledge that it would take a long time to pass ISA reform through parliament, and that such a reform would likely be announced at the Autumn Budget, it seems likely that if a concrete decision is made to reform the cash ISA, it would be announced in this Autumn.
The pros and cons of a cash ISA
Higher interest rates have made cash ISAs more attractive in recent years. Savers get the security of fixed return and it is tax-free.
But they could lose their appeal as interest rates continue to drop. They also may struggle to beat inflation, unlike investing in the stock market.
Even without an ISA, savers benefit from a personal savings allowance at £1,000 per year for basic rate taxpayers and £500 for higher earners.
Research by Quilter suggests many savers are losing money in real terms by keeping funds in a cash ISA.
Someone who invested £10,000 in a cash ISA in December 2012 would currently have £11,955. Adjusted for inflation, this is just £7,918, according to research by the wealth manager.
In contrast, a £10,000 investment in the IA Global Equity index over the same period would be worth £33,526 or £22,221 after inflation.
Holly Tomlinson, financial planner at Quilter, said: “Following a relatively rare period of cash ISAs delivering above inflation returns, we are now back to people losing money in real terms by keeping their money in cash.”
Tomlinson said scrapping or scaling back cash ISAs to try shift the UK’s savings culture towards investment is “not necessarily a bad thing as too much wealth sits in low-yielding cash when long-term investing could deliver better returns and fuel economic growth”.
She added: “While this data shows cash ISAs are not the best place to save to get the best returns, these types of accounts still have their place. Your saving goal might be in the short-term meaning you can’t take on the inherent risk that comes with investing.”
Rob Morgan, chief investment analyst at Charles Stanley, said many people hold too much in cash and not enough in investments, which is a “missed opportunity to drive long term wealth creation".
He added: “This reticence has negative ramifications for the success of the UK stock market and the wider economy too.
“While cash is exactly what is needed for building short term financial resilience through an emergency fund and saving for shorter term goals, it fails to drive household wealth meaningfully forward over the longer term.”
If cash ISAs were axed or limited in some way in favour of stocks and shares ISAs, Morgan suggests those wanting cash-like returns in exchange for little risk could mitigate the move by investing in areas such as short-dated gilts or money market funds.
He added: “That would require some level of knowledge, or perhaps advice or guidance, to achieve the desired objectives, but it could undermine the objective of incentivising greater long-term investment in the stock market specifically."
Tomlinson suggests the approach to the cash ISA should be reform, not removal.
She said: “Capping tax-free cash savings or improving incentives for investment ISAs could strike the right balance. The UK does need to boost its investment culture, but that shouldn’t come at the expense of savers who rely on cash for stability.”
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