Will Rachel Reeves impose a £5,000 cash ISA limit?
The chancellor will reportedly lay out plans to reduce the amount of money you can put into a cash ISA this month. We look at why, and what it could mean for your savings.


Marc Shoffman
Rachel Reeves seems set to reduce the amount of money that you can put into cash ISAs, in a blow for savers using the tax wrapper.
The chancellor is expected to announce that the proportion of your £20,000 ISA limit that you can save in cash will be cut, with some City figures suggesting this could be as low as £5,000.
This will mean that if savers want to use their full ISA limit to make the most of the tax-free savings they will have to put most of it into a stocks and shares ISA.
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Earlier this year, reports suggested the limit could be reduced even further, to just £4,000.
The announcement seems likely to take place at her Mansion House speech, according to reports in the Financial Times, which will take place on 15 July and is used by the chancellor to address City figures.
Reeves’ reasoning behind reducing the cash ISA limit seems to be that such a move could incentivise savers to put their money into a stocks and shares ISA instead, with the aim of propping up the British stock market.
The chancellor previously said in March that she was seeking to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment”.
If Reeves goes through with these plans and reduces the cash ISA limit, it will mark one of the biggest shake-ups to the UK’s savings market since ISAs were introduced in 1999.
Though the proportion of your ISA limit that you can save in cash seems to be set to be reduced, Reeves has previously ruled out a reduction to the overall £20,000 ISA limit which can be spread across the four different types of ISA – cash, stocks and shares, innovative finance, and lifetime.
The chancellor told the BBC: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.
“A lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people.
“I absolutely want to preserve that £20,000 tax-free investment that people can make every year,” she said.
Some commentators have called for Reeves to leave the cash ISA limit alone, with Sarah Coles, head of personal finance at Hargreaves Lansdown, saying: “Cash ISAs are often a first port of call when people are starting out, and they’ll often gradually move over into investments as they find their feet.
“If the speculation is accurate, it means they’ll have less available to transfer into stocks and shares ISA – effectively reducing investments rather than boosting them.”
When could a cash ISA reduction come into effect?
The earliest we are likely to hear about whether or not the cash ISA limit will be reduced is at the chancellor’s Mansion House speech on 15 July.
However, the government is yet to confirm whether or not ISA reform will take place, let alone whether it will be announced in the speech.
If a reduction in the cash ISA limit does end up being announced at Mansion House, it could still be some time before it is implemented.
A reform of this size would be expected to be announced at a large fiscal event.
Reeves has previously stated she is committed to only one large fiscal event a year, the Autumn Budget, in order to provide certainty and stability in markets. The Autumn Budget is usually held in late October or early November.
MoneyWeek contacted HM Treasury for comment.
Could a £5,000 cash ISA limit help the UK stock market?
Campaigners have suggested an annual cash ISA limit would encourage more people to put their yearly tax-free ISA allowance into a stocks and shares ISA, which would also boost the UK economy.
The Treasury seems to be alive to these suggestions, following months of lobbying by City groups.
If savers do end up redirecting their cash ISA holdings into British stocks and shares it would mark a welcome boost to the UK stock market which is relatively unloved when compared to its peers in the US.
A recent campaign by investment platform IG argued that a reduction in the amount you can put in a cash ISA, as well as the removal of stamp duty on shares, is one way to save the UK stock market.
Furthermore, some experts have suggested that a reduced cash ISA allowance may not be that worrying, as stocks and shares tend to provide greater returns over the long term, and there are certain low-risk options that you can hold in a stocks and shares ISA.
However, while a redirection of ISA funds into equities would certainly be a boon for the London Stock Exchange, other groups seem sceptical about whether savers who do end up putting more money into stocks and shares will favour UK-listed companies.
US-listed stocks can be held in the stocks and shares ISA, and these firms have historically provided better returns for investors than UK-listed companies.
The S&P 500, a stock market index that tracks the performance of 500 of the US’s largest companies, has provided annualised returns of 15.5%% over the past five years.
Meanwhile, the FTSE 100, which tracks the performance of 100 of the UK’s largest firms, has provided annualised returns of 13.2% in the last five years.
With better returns on your investments available elsewhere, there is no guarantee that there will be a large inflow of investment into London-listed stocks rather than those listed elsewhere in the world.
Brian Byrnes, head of personal finance at Moneybox, has also cast doubts over whether cash savers will actually move their money into the stock market.
“Simply cutting the tax-free allowance on cash ISAs will not necessarily prompt equal inflows into investing products either,” he said.
“People opt to use cash ISAs over their stocks and shares counterparts for a multitude of reasons, including risk aversion, and reducing the amount of money these savers can put into the cash ISA is unlikely to change this mindset.”
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Daniel is a digital journalist at Moneyweek and enjoys writing about personal finance, economics, and politics. He previously worked at The Economist in their Audience team.
Daniel studied History at Emmanuel College, Cambridge and specialised in the history of political thought. In his free time, he likes reading, listening to music, and cooking overambitious meals.
- Marc ShoffmanContributing editor
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