Rachel Reeves is set to cut the annual cash ISA limit from £20,000 to £12,000 in her make-or-break Budget, in what could be seen as a blow to hard-working savers.
The chancellor is hoping to push more households to invest their savings into the UK stock market, as she scrambles to fill her £22bn fiscal black hole.
Sources familiar with Wednesday’s Budget preparations told the Financial Times that Reeves had initially planned to reduce the limit to a £10,000 cap, but raised the figure after months of fierce debate.
A cross-party Treasury select committee report from last month estimated British households have a total of £360bn tied up in cash ISAs, with many opting for the tax-free accounts over riskier investments in stocks and shares.
Between 2021-22 and 2023-24, money put into stocks and shares ISAs decreased by 9 per cent, while injections into cash ISAs more than doubled.
It comes as Ms Reeves looks to fill a gaping hole in the public finances in her highly anticipated Budget on Wednesday. The chancellor is said to have considered a number of proposals to overhaul the ISA system, including a “Brit ISA” that would have required a minimum allocation of 20 per cent into UK equities. However, she is said to have dropped the plan following backlash from ISA providers.
She is also rumoured to be slashing the two-child benefit cap and imposing a new mansion tax on more than 100,000 high-value properties in a move that has been dubbed the “mansion tax”.
Opposition leaders have been quick to criticise the ISA plans, accusing Ms Reeves of launching a tax raid on savers. Tory shadow chancellor Sir Mel Stride told the Daily Mail: “Hardworking savers shouldn’t be facing a tax raid to fund Labour’s addiction to ever more welfare spending.
“The Conservatives warned that tax rises were coming after Rachel Reeves lost control of the finances. Slashing the cash ISA allowance would hit millions of responsible people trying to build financial security – especially in uncertain times.
“Labour should be backing savers, not making them pay for the chancellor’s failures.”
