Cash Isa allowance could be HALVED to just £10,000 in Rachel Reeves’ Budget

The Chancellor could halve the amount Britons can save tax-free in her Autumn Budget next month, reports suggest. 

Rachel Reeves is said to be considering cutting the cash Isa allowance to £10,000 from its current £20,000 level, according to the Financial Times.

It is part of a plan to encourage savers to divert billions of pounds of cash savings into the stock market and boost Britain’s flagging economy. 

It comes as she is clambering to plug a hole in the nation’s finances which could be as much as £30billion. 

A Treasury spokesman said: ‘Cash savings are important for people looking to put cash away for a rainy day and we will protect that. 

‘But the Chancellor has been clear that she wants to get Britain investing again, so British companies can grow and British savers who choose to invest can get more in return.’

The Chancellor is weighing up halving the cash Isa allowance to £10,000 from its current £20,000 limit

It is understood that halving the cash Isa allowance is just one of a range of measures for Isa reform being considered, with the return of the ‘Great British Isa’ also on the table. 

> Read more: Five of the best cash Isas

This was a previous plan under the Conservative Government which proposed to allow investors an additional £5,000 tax-free allowance, but only if they invested it solely in UK-listed companies.

It was scrapped by the Labour Government on the grounds that it would over-complicate the Isa landscape. 

The Chancellor was widely expected to announce plans to slash the £20,000 tax-free allowance in her Mansion House speech in July. 

But these plans were put on hold after a furious backlash from savers, building societies and the Daily Mail and This is Money’s Hands off Cash Isas campaign. 

At the time, building societies warned that they used cash Isas to fund mortgages and that restricting inflows to cash Isas would potentially drive up the cost of offering mortgages to borrowers which would be passed on to homeowners. 

Andrew Gall, head of savings at the Building Societies Association says: ‘It is really concerning that Rachel Reeves is still considering cuts to the cash Isa limit. 

‘We absolutely support the calls for more people to invest, especially in the UK. Cutting the cash Isa limit simply won’t achieve that aim. Starting to save is a crucial part of the journey to investing.’

It was thought the allowance could be cut to £4,000 or £5,000 in a bid to get cash savers investing in the stock market and boost the economy. 

A raid on cash Isas would also boost the £6billion the Treasury rakes in from tax on savings interest each year.

Fresh plans to cut the tax-free cash Isa allowance to £10,000 would restore the cash Isa allowance to levels not seen since 2009, when the Isa allowance was £10,200.

Currently savers can put up to £20,000 a year into cash Isas with all the interest earned on savings being free from tax. 

Savers can choose whether to invest the allowance in the stock market via a stocks and shares Isa, hold it in cash or a mix of both. 

There have long been concerns a reprieve in plans to curb the cash Isa allowance would only be temporary.

Last week Sarah Coles, head of personal finance at stockbroker Hargreaves Lansdown, told This is Money: ‘Cuts to the cash Isa limit have yet to be completely ruled out.’ 

The Chancellor said in her Mansion House speech in July that she would be considering ‘further changes to Isas’ to achieve ‘better outcomes for both UK savers and for the UK economy’.

Brian Byrnes, head of personal finance at investing platform Moneybox, said: ‘It’s a misconception that cash savings are a blocker to investing, they are the enabler. 

‘Cash Isas provide ordinary savers with the peace of mind and financial resilience needed to consider long-term investing.’

Those in favour of cutting the cash Isa allowance argue that the tax-friendly accounts discourage people from investing, which can potentially grow their money more over the long term. 

Michael Healy, UK managing director of trading and investing platform IG says: ‘Cash Isas are a pernicious product that have not only failed to improve people’s wealth but have steadily eroded it. They are completely incompatible with long-term wealth creation.’

SAVE MONEY, MAKE MONEY

Sipp cashback

Sipp cashback

£200 when you deposit or transfer £15,000

4.51% cash Isa

4.51% cash Isa

Trading 212: 0.66% fixed 12-month bonus

£20 off motoring

£20 off motoring

This is Money Motoring Club voucher

Free shares bundle

Free shares bundle

Get free UK shares worth up to £200

4.37% Isa with bonus

4.37% Isa with bonus

Now with no penalty for withdrawals

Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.