Rachel Reeves set to cut cash ISA limit to £12,000
Savers are facing a major policy shake-up at the forthcoming Budget as Chancellor Rachel Reeves is reportedly planning to slash the annual cash ISA ceiling to £12,00 in a bid to encourage increased investment in stocks instead of hoarding cash.
People close to preparations for Wednesday’s Budget said Reeves had decided to reduce the limit from £20,000, but slightly higher than the £10,000 cap that had initially been floated, according to reports from the Financial Times.
The decision will likely appease bodies who are in support of the cash ISA, including building societies who initially opposed the slash in the summer when it was first brought into consideration.
The lenders argued they use cash ISAs to fund mortgages, and reducing these inflows would potentially make home loans more expensive.
However, the decision falls short of the demands of investment platforms which have urged the Chancellor to cut the limit in half or get rid of the ceiling altogether in order to push more people to invest.
Drop the Brit ISA
While the cash ISA is still on the chopping board, the Chancellor has dropped plans for a voluntary type of Brit ISA.
The proposed ISA would have had a minimum allocation of 20 per cent to UK equities in a bid to curb domestic investors looking overseas. However, the plans sparked fierce backlash from ISA providers and the UK’s Investment Association trade body.
Wednesday’s crunch Budget will follow months of fierce debate and speculation across the Square Mile over the plans to cut the cash ISA limit and create a pre-prepared stocks and shares ISA with a minimum UK holding.
But, after weeks of consultation with industry figures, Reeves concluded there was limited support for the creation of a Brit ISA and that many established investment platforms and providers already had strong UK offerings in their products.
One person involved in negotiations said: “The idea had a poor reception and there was a general feeling that we didn’t really need to do it.”
The creation of a Brit ISA was first proposed by then Chancellor Jeremy Hunt in the 2024 Spring Budget, but was initially scrapped by Labour in September following fierce opposition before being revived by the Treasury.
Other proposals
Reeves is expected to make other adjustments to the UK’s saving regimes in the Budget in her bid to kickstart economic growth.
This includes the potential hike of dividend taxes for stocks held outside tax-efficient wrappers including ISAs and pensions, and a potential cut to the 0.5 per cent tax charge on shares that have recently listed on London’s main index.