The Chancellor has announced on Wednesday whilst delivering her Budget that the government will make cuts to the tax-free ISA allowance.
In the past savers could save up to £20,000 tax-free in a cash ISA or a stocks-and-shares ISA, this will now be cut.
Rachel Reeves told MPs in the House of Commons, “The UK has some of the lowest levels of retail investment in the G7. And that is not only bad for businesses, who need that investment to grow, it’s bad for savers too.
“Someone who’s invested £1,000 in an average stocks and shares ISA every year since 1999 would be £50,000 better off today than if they’d put the same money into a cash ISA.”
She added, “From April 2027, I will reform our ISA system keeping the full £20,000 allowance while designating £8,000 of it exclusively for investment, with over 65s retaining the full cash allowance.
“And thanks to our changes to financial advice and guidance, banks will be able to guide savers to better choices for their hard-earned money.
“Over 50% of the ISA market – including Hargreaves Lansdown, HSBC, Lloyds, Vanguard and Barclays – have signed up to launch new online hubs to help people invest in Britain.”
Harriet Guevera, Chief Saving Officer at Nottingham Building Society, said, “The decision to slash the annual Cash ISA allowance from April 2027 is a sucker punch for savers and deeply disappointing for lenders. We support the Government’s aim to boost an investing culture in the UK, but restricting choice is not the way to do it.
“At a time when financial confidence is already fragile, cutting the allowance sends a difficult message to households who are trying to do the right thing.
“Millions of savers rely on Cash ISAs as a low-risk way to build financial stability. Two thirds of our Cash ISA customers have used the full £20,000 allowance so far this year. These aren’t people with excess wealth – they’re individuals and families working hard to save for the future.
“What’s more, only 38% of Cash ISA holders nationwide would consider switching to a Stocks and Shares ISA if the allowance is cut.
“Limiting Cash ISA deposits is also at odds with this Government’s own pledge to double the size of the mutuals sector, threatening to shrink mutual lending capacity, limit access to homeownership, and stall the long-term growth of building societies that reinvest in their members and local communities.
“If the Government’s intention is to encourage more investment, these changes must go hand in hand with better financial education. The UK still faces a serious gap in financial literacy, and too many people lack confidence in navigating alternatives. Without addressing that, there’s a risk of leaving savers behind.
“Our priority remains unchanged: to provide the best possible solutions to help our members save and plan for the future – no matter their age, life stage, or financial ambition. We will continue to work with government and industry to ensure savers’ voices are heard, while doing everything we can to keep delivering value, flexibility and trust for our members.”
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