Rachel Reeves U-turns on plans to cut ISA limit to £4k
20 May 2025, 02:26
Rachel Reeves has confirmed she will not reduct the £20,000 annual Isa limit - a move that's set to benefit millions of UK savers.
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The notable U-turn follows calls from finance chiefs urging Reeves not to reform cash Isas, amid reports suggesting plans were afoot to slash the tax-free savings allowance.
The Treasury was reportedly considering slashing the annual cash Isa allowance from £20,000 to £4,000 - a move that aimed to encourage more people to put their money into investments.
Appearing to backdown on Monday, Reeves said: “I’m not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.
"And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people.
“But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”
It came amid suggestions Reeves was looking for new sources of investment in the UK economy to boost growth.
It comes after Emma Reynolds, the Economic Secretary to the Treasury, spoke in a recent Lords committee, suggesting that Isas are draining investment from the London Stock Exchange.
The Government last month confirmed it is looking at options for reform, while Treasury costings documents released with the spring statement assume the overall Isa limit of £20,000 remains in place up to and including 2029/30.
The reported reduction would mean many with savings in tax-free Isas would have to choose between shifting their money into riskier stock investments or putting it into savings accounts subject to tax.
Banks and building societies have challenged the Chancellor's stance during meetings with Treasury officials.
Stuart Haire, chief executive of the Skipton Building Society, has met Treasury officials to push against the plans and told The Telegraph reducing the limit would not have the desired effect.
"We agree with the Government that people in the UK should increase, if they have the wherewithal and the risk appetite, the amount of money they have got in equities," he said.
"However, changing the cash Isa limit will not do that, so therefore it's the wrong tool to achieve the policy outcome."
David Postings, the chief executive of UK Finance, told The Telegraph: "Getting more people investing is the right thing to do, but we should do it in a positive way rather than restricting options such as the ability to invest in cash Isas.
"They are an easy-to-understand product that help individuals start saving and set aside money for the future. The money banks and building societies hold in cash Isas is also lent out, supporting borrowers and the wider economy."
This comes after the Conservatives warned last month that reforms to cash Isas risk causing "damage" to the residential mortgage market, with shadow Treasury minister Mark Garnier challenging the government in the Commons.
A Treasury spokesperson insisted "no decisions have been made".
"We want to support people to save and absolutely recognise the important role that cash savings play in building a buffer for a rainy day," they said.
"We also want to ensure that savers are getting the best returns possible, while boosting the economy to create jobs right across the UK."
