Cash ISA warning issued as Rachel Reeves's expected cuts could 'have big consequences'

In her Budget next month, Chancellor Rachel Reeves is expected to cut the amount that savers may put into cash ISAs from £20,000 to £10,000. The Government's strategy keeps the overall £20,000 threshold while restricting cash holdings to half that amount. By only being able to keep half of this allowance in a Cash ISA, savers would be incentivised to invest more of their overall ISA allowance in the stock market instead - using a Stocks and Shares ISA. This comes as Ms Reeves wants more people to put their savings in riskier stocks and shares, to better support the UK economy.

But the possible plan has been widely criticised by industry leaders, with some warning of a "huge blow" to millions of savers across the UK.

Derence Lee, chief finance officer at financial institution Shepherds Friendly, told the Express: "Cash ISAs have long been an extremely useful tool for many people to save money effectively, and one of the core reasons is the annual £20,000 tax-free allowance."

If implemented, Mr Lee said the reduction "would deal a huge blow to the millions of people across the UK who rely on Cash ISAs for building their savings, particularly during this period of economic uncertainty".

He added: "The ability to save tax-free helps people build emergency funds, plan for major life expenses, such as buying a first home, as well as secure their financial future without the burden of taxation eating away at their savings.

"Cutting the allowance so drastically could potentially discourage saving, and with the Bank of England revealing that over £49.8bn was deposited into Cash ISAs in 2024, it's clear to see that savers value the security and benefits of these accounts."

He added that with the cost of living remaining a challenge and financial security a major concern, reducing the ISA limit could have serious consequences for millions of savers who rely on these accounts to build a secure future. Rather than making such cuts, he claimed that policymakers should focus on incentivising responsible financial planning.

Similarly, Martin Lewis, the financial guru and founder of Money Saving Expert, has warned that the measure would alienate older savers while failing to achieve the intended impact on younger demographics.

He said: "My view is that if you cut the Cash ISA limit it will simply pee off millions of older people. I doubt it will change the dial at all on investing - it will just mean they pay more tax on savings.

"It will also cause a problem for building societies in order that they use savings to lend cash to raise mortgages. So it could be a real issue for lending on mortgages."

While admitting that more money needs to be invested in UK firms, he suggested an alternative - creating a starter investment ISA bonus that would provide a 10% bonus on the first £2,000 people invest. The money expert emphasised that "we do not know" whether this will definitely happen, adding the reports originated from the FT.