Reeves 'to slash ISA limits at Budget' in bid to get Brits to buy stocks and shares

According to the Telegraph, the Treasury is set to halve the amount that savers can put away each year into Individual Savings Accounts (ISAs) without paying tax.

The limit will drop from £20,000 to £10,000 in a bid to see savers instead invest money in stocks and shares, it is understood.

Lucy Rigby, the Economic Secretary to the Treasury, told the Telegraph: “I think investing and the information around investing is the preserve of too few people and traditionally a wealthy few. That’s why we want to build up this culture of retail investment and a shareholding democracy.”

She added: “When Thatcher left office, one in five UK adults owned shares. Fewer than one in 10 do now… If someone wants to label this Thatcherite then so be it.”

Read More: Rachel Reeves’ rumoured tax hike would be the ultimate betrayal of working Britain

Read More:

But the reforms are deeply controversial, with some arguing that penalising those using ISAs will not lead to an uptick in investment among Brits.

A powerful committee of MPs has urged the Government not to cut the limit, saying such a move would be unlikely to incentivise savers.

The Treasury Committee said the focus instead should be on improving financial literacy and enhancing access to good advice and guidance, so people can make informed decisions with their savings.

The committee warned that, as well as the direct impact for cash ISA savers, a potential reduction in the allowance could also backfire in other ways.

Building societies depend on cash ISA savings as a critical funding source for their mortgage lending, and the committee said if this was reduced, it could mean a less competitive market for financial products and higher prices for consumers.

More than 14 million people in the UK are thought to have more than £10,000 saved in cash, and the Government believes some of this could be invested in the stock market to improve people's financial health.

The Treasury Committee said in the 2023-24 tax year, two-thirds of ISA contributions were to cash ISAs, bringing total cash ISAs holdings to £360 billion. The average cash ISA subscription in 2023-24 was £6,993, the committee's report said.

It said: "With 66% of all ISA subscriptions directed to cash ISAs in the 2023-24 tax year, cash ISAs are the most widely used type of ISA. Some 14.4 million people hold a cash ISA and no other type of ISA

"The Building Societies Association, a representative trade body, described cash ISAs as a 'policy success', which helped 'consumers to achieve their savings goals' and played 'an integral role in the UK savings market' for decades."

The report also highlighted various surveys suggesting many savers would move their money to other cash savings, which could attract tax on their returns, if there was a decrease in the cash ISA limit.

It said: "The Government's ambition to encourage long-term investment by retail savers is in the interests of both savers and the wider economy.

"However, reducing the cash ISA allowance is unlikely to drive a significant transfer of cash savings into investment products."