Currently, savers can put away around £20,000 each tax year, but it has been rumoured that Chancellor Rachel Reeves (pictured) and the Treasury are considering lowering the maximum limit to £4,000 per tax year.
The move is intended to encourage a culture of retail investing in the UK and investment in equities to support investment in UK companies.
Media reports have suggested that cash ISA reform will not be announced in the Spring Statement, which is due to take place on 26 March.
Reports have suggested that while it will not be announced in the Spring Statement that cash ISA reform is a longer-term goal, it will not be off the table completely, with some reports suggesting that it could be included in the Autumn Statement.
The reform of cash ISAs has been criticised by building societies, with the trade body for the sector, the Building Societies Association (BSA), saying they play a vital role for funding for banks, building societies, credit unions and other providers and that changes would have a knock-on impact on price and availability of loans.
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Richard Fearon, Leeds Building Society’s chief executive, said it would make more mortgages more expensive and negatively impact mutuals.
He noted that there was a lack of demand for stock and shares ISAs, investments not being suitable for everyone, and that cash ISAs were a vital source of mortgage funding for building societies.
Research from Nottingham Building Society also shows that nearly half of 24-34-year-olds say a cut in the cash ISA allowance would impact their ability to put down a home deposit and more than a third fear their ability to save towards their retirement would be impacted.
The report stated that if the cash ISA allowance is cut, an estimated two-and-a-half million say they would simply save less.
Harriet Guevara, chief savings officer at Nottingham Building Society, said: “We welcome the fact that the government has heard the concerns of the industry and the public around potential changes to the cash ISA allowance, and that no changes will be announced in the upcoming Spring Statement. Cash ISAs are a vital tool that help people plan for key life moments, from buying a home to securing their retirement, and we believe the allowance should stay as is.
“While we support the government’s broader efforts to stimulate economic growth and drive investment in UK businesses, we remain steadfast in our view that there’s no guarantee that reducing the cash ISA allowance would actually help – and, in fact, there’s a real concern that it will simply lead to people saving less.
“Alongside our industry colleagues, we stand ready to engage with the government in an open and constructive dialogue around the ISA regime, and to work together to build the strong financial future for the UK that we all want to see.”
