Will Rachel Reeves slash cash ISA limit to £12,000?

Rachel Reeves is reportedly mulling a cut to the cash ISA annual allowance in a bid to encourage savers to put more of their money into the stock market.

The chancellor will deliver the Autumn Budget in the House of Commons on 26 November as she attempts to get the economy back on track.

Among some of the options she’s said to be looking at is a cutting of the cash ISA annual allowance. Currently, the overall ISA allowance is £20,000.

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Earlier rumours suggested it could be cut to as low as £4,000 but more recent leaks indicate the limit may be reduced to a more generous £12,000.

However, recent polling revealed a reduction in the allowance would be an unpopular move among Brits.

Cash ISAs are the most widely used type of ISA. In the 2023/24 tax year, 66% of all ISA contributions were to cash ISAs, bringing total cash ISA holdings to £360 billion, according to government figures.

Separate Bank of England data reveals £28.75 billion was deposited into cash ISAs between April and September, up from £28.59 billion over the same six months in 2024.

A recent report put forward at the Treasury Select Committee warned Reeves that not only would cutting the cash ISA allowance discourage more of an investment culture in the UK, it would hurt Brits in other ways.

“Building societies depend on cash ISA savings as a critical funding source for their mortgage lending. If this was reduced, it would mean a less competitive market for financial products and consequently higher prices for consumers,” the report said.

Dame Meg Hillier, chair of the Treasury Select Committee, said: “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. Without this, 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.”

The Treasury also highlighted the government’s Leeds Reforms, announced in July, under which banks will send investment opportunities to savers with cash sitting in low-interest accounts for the first time in a bid to highlight the opportunities of investing for consumers who are able to do so.

Under current trends, moving £2,000 from these accounts to stocks and shares could make millions of people over £9,000 better off in 20 years’ time, the government said.

The latest cash ISA rumour is one of several potential reforms to ISAs that could be announced in the Budget.

Earlier this year, the chancellor was reportedly considering imposing a £4,000 or £5,000 annual limit for cash ISAs. Currently, you can save or invest a total of up to £20,000 per year across different ISAs, and you don’t have to pay tax on the interest or investment returns.

The chancellor told the BBC in May she is not looking at reducing the overall ISA limit of £20,000.

In March, Reeves said 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” in Britain.

The top cash ISA currently on the market pays 4.55% interest, but well-diversified investments have historically brought higher returns.

At a recent Investment Association dinner, City minister Lucy Rigby said: “Someone who put away £1,000 in a cash ISA every April since 1999 would now hold about £34,000. If they had instead invested in a stocks and shares ISA instead, they could now have around £83,000 – over twice as much.”

Revival of cash ISA limit plans “really disappointing”

Some critics have slammed the idea of cutting the cash ISA limit.

Andrew Gall, head of savings at the Building Societies Association (BSA), which represents 43 UK building societies and six credit unions, said it was “really disappointing that the chancellor seems only to be listening to the investment businesses who would benefit from the changes”.

Gall argued that cutting the cash ISA limit will undermine the “brilliant savings product”, make lending more expensive, and will make the ISA system more complex and expensive to administer.

"Starting to save is a crucial part of the journey to investing – undermining cash ISAs risks undermining the very investment culture that we should be trying to build on top of its strong foundations,” he said.

When rumours of a cash ISA limit first circulated earlier this year, the BSA warned building societies use cash ISA deposits to fund mortgages and said a reduction in how much can be saved in one could therefore make lending more expensive.

Kevin Mountford, co-founder of Raisin UK, believes a cut to the cash ISA limit would be a step in the wrong direction by the government.

He said: “At a time when more people than ever are paying tax on their savings interest, restricting access to tax-free cash savings could feel like a step backwards for ordinary households.”

In contrast, investing and trading platform IG said it supports a potential reduction in the cash ISA limit, arguing the product has “not only failed to improve people’s wealth but have steadily eroded it,” and adding that it is “completely incompatible with long-term wealth creation”.

Michael Healy, UK managing director at IG, said: “The chancellor is absolutely right to take aim at this outdated product – and she should go further by abolishing the cash ISA allowance altogether.

“We should not be incentivising or rewarding the hoarding of cash, particularly at a time when our stock market is teetering on the brink through lack of investment. Britain needs more people investing and more money directed towards growth, and abolishing the cash ISA is a sensible place to start.”

Just 12% of Brits are in favour of a reduction to the £20,000 cash ISA allowance, while 48% oppose the change, according to recent polling by AJ Bell.

Increases to income tax are also unpopular among Brits, with 48% saying they’re against rises.

Reeves had been reportedly weighing up raising income taxes but has now U-turned on the plans after receiving better-than-expected economic forecasts from the Office for Budget Responsibility (OBR).

Tom Selby, director of public policy, said: “With an increase to income tax rates now reportedly off the cards, voters will be wary of the raft of other potential tax-raising measures on the table ahead of the Budget.

“However, the fact a cash ISA cut comes in just as unpopular as a hike in income tax rates may give Reeves pause for thought on whether such a move is really a good idea.”

Reeves eyes stocks and shares ISA reform

On top of potential limits to the cash ISA allowance, the Financial Times reported the chancellor is also considering introducing a minimum UK shareholding requirement in the stocks and shares ISA.

If Reeves presses ahead with the proposal, British investors would effectively be forced to put a proportion of their investment portfolios into the UK stock market, eliminating the geographical freedom that is currently available in the stocks and shares ISA.

A requirement to invest a portion of ISA holdings in the UK would provide a boost to the UK stock market, and therefore help stimulate economic growth.

The plans are reminiscent of the previous Conservative government’s scrapped ‘Brit ISA’ plans, which would have allowed investment of an additional £5,000 annually in UK equities.

Reports indicate Reeves is also looking at other measures to direct more ISA holdings into the UK stock market, including a proposal to remove stamp duty from London-listed stocks held within ISAs.

When could a cash ISA limit be introduced?

As mentioned previously, if a reduction in the cash ISA limit is announced, it will likely be in the Autumn Budget.

The Budget is set to be delivered by Reeves in Parliament on 26 November at around 12:30pm. However, if a reform like this is pushed through, it's highly unlikely it will be implemented immediately.

Instead, the earliest a cash ISA limit is likely to be introduced is the start of the next tax year in April 2026.

Will I lose access to my cash already in an ISA?

It is extremely unlikely the government would make any changes to the ISA rules retrospectively. This means any cash savings you already have in an ISA are safe – the chancellor isn’t going to force you to move them into a stocks and shares ISA, or steal them away for the Treasury.

Any reforms to the ISA regime will likely come into play next April 2026 at the earliest, in line with the new tax year.