Speculation that the Chancellor could cut the cash ISA tax-free allowance from £20,000 to £10,000 has persisted throughout the year, but it has been repeatedly reported that the idea has been pushed back.
Rumours have since resurfaced, suggesting this could be announced at the Autumn Budget next month.
In its report scrutinising the cash ISA, the Treasury Committee said reducing the tax-free allowance was “unlikely to incentivise people to invest their cash in stocks and shares” and that the government should focus on financial inclusion.
It recommended improving financial literacy and access to advice so people could make informed decisions about their savings.
Data from HMRC showed that subscriptions to cash ISAs made up 66% of all ISA subscriptions in the 2023-24 tax year, and the amount saved rose by 125% between 2021-22 and 2023-24, while the amount saved through stocks and shares ISAs fell by 9% over the same period.
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In April this year, a record £14bn was saved into ISAs.
The committee said a lower allowance would have “negative knock-on effects” for other consumers, as building societies rely on the savings to fund mortgage lending. Reducing this would “constrain access to retail savings” and mean a “less competitive market for financial products and consequently higher prices for consumers”.
It also said this would “undermine the stability and competitiveness of building societies”, which would be to the detriment of consumers and the broader financial ecosystem.
The Treasury Committee said the cash ISA should not be considered in isolation when trying to change investment and savings behaviours, suggesting people could also benefit from tax-free savings allowances on interest from non-ISA bank accounts.
The UK is a ‘long way’ from a well-informed investment culture
Dame Meg Hillier, chair of the Treasury Select Committee, said: “The committee is firmly behind the Chancellor’s ambition to create a culture in the UK where savers are sensibly investing their money and getting better returns through well-informed financial decisions. But we are a long way from that point.
“A comprehensive effort to genuinely improve financial education and establish accessible, high-quality financial advice and guidance for people should be the Treasury’s priority. This government is meant to be supportive of mutuals, with a manifesto commitment to grow the sector, so it must carefully consider how changes could badly impact building societies, which provide affordable mortgages for so many.”
She added: “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.”
Cutting the cash ISA allowance is ‘all downside’
Robin Fieth, chief executive of the Building Societies Association (BSA), said the organisation welcomes the “thoughtful report” that “rightly recognises the vital role cash ISAs play in supporting savers”.
He said: “We strongly agree with the recommendation not to cut the cash ISA limit, and we support efforts to encourage more people to invest through better awareness and education. However, undermining a successful savings product is not the way to achieve that.”
Fieth added: “Cutting the cash ISA allowance is all downside. It won’t encourage investment. It will simply undermine savings habits and make mortgages more expensive.
“This is ultimately a question of fairness. Cutting the cash ISA limit benefits those with significant financial resources who can access other investment options to continue to build their wealth. Meanwhile, working people and pensioners – who may have smaller savings pots and a lower risk tolerance – will lose a trusted way to grow their savings securely, including the opportunity to put a small inheritance or pension lump sum into their cash ISA.”
