The Chancellor should not cut the cash Isa allowance from its current £20,000 annual limit in the upcoming Budget, MPs warn.
In a Treasury Select Committee report, MPs said cutting the cash Isa allowance is unlikely to incentivise people to instead invest cash in stocks and shares.
Rachel Reeves is said to be considering restricting the amount that can be held in cash Isas to £10,000 in the next financial year, which begins in April 2026, after lobbying by city bosses.
It would be part of a move encourage savers to divert billions of pounds of cash savings into the stock market and boost the £6billion the Treasury rakes in from tax on savings interest each year.
The Chancellor was widely expected to announce a plan to slash the £20,000 tax-free allowance in July, meaning the full allowance could only be used for stocks and shares.
But it was put on hold after a backlash from savers, building societies and the Daily Mail’s Hands Off Cash Isas campaign.
Currently, Britons can choose how they use their full £20,000 annual tax-free wrapper, either in cash savings, investments or a mixture of both.
Hands off our cash Isas: MPs have said the Government should not cut the cash Isa allowance as it won’t make savers more likely to invest
Dame Meg Hillier, chair of the Treasury Select Committee, says: ‘This is not the right time to cut the cash Isa limit.
‘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.’
Shadow Chancellor Sir Mel Stride says: ‘In reality this would be a tax raid, pure and simple.
‘It’s little wonder that the Daily Mail has stepped in to defend savers through its campaign.
‘The paper has given voice to the millions of responsible people who stand to lose out, shining a light on what could be one of the most controversial and calamitous decisions of Rachel Reeves’s torrid eight months as Chancellor.’
Cash Isas are the most widely used type of Isa and some £360billion is now held in them.
The Financial Conduct Authority found three in five adults with savings over £10,000 held all or most of their investible assets in cash savings and not in investments.
Investment firms said savers may have the purchasing power of their savings eroded by inflation if they hold long-term savings in cash.
But building societies have argued restricting cash Isas would not ‘suddenly change savers’ appetite to take on risk’.
They also use savings held in cash Isas to fund mortgages and restricting inflows would potentially drive up the cost to homebuyers.
A cut to the allowance ‘could have the knock-on effect of making loans to households and businesses more expensive and harder to come by,’ says the Building Society Association.
Dame Hiller adds: ‘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.’
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