Chancellor Rachel Reeves is poised to announce a significant reduction to the annual cash ISA limit, cutting it from £20,000 to £12,000 in the forthcoming Budget. This policy shift is designed to incentivise savers to move their money away from cash deposits and towards investments in the stock market.
A Budget for Investment
According to reports from the Financial Times, the new £12,000 cap is a compromise. It is slightly higher than the £10,000 figure that was initially considered over the summer. The decision, expected to be confirmed on Wednesday, follows months of intense debate within the financial services industry, particularly in London's Square Mile.
Sources close to the Budget preparations indicate that this middle-ground figure is likely to appease building societies, which had strongly opposed a deeper cut. These lenders argued that cash ISAs are a vital source of funding for mortgages, and reducing these inflows could potentially make home loans more expensive for borrowers.
The Brit ISA Gets Scrapped
In a parallel development, the Chancellor has dropped the controversial plans for a 'Brit ISA'. This voluntary scheme, first proposed by former Chancellor Jeremy Hunt, would have required a minimum of 20 per cent allocation to UK equities.
However, the proposal faced fierce backlash from ISA providers and the Investment Association. After a consultation period, the Treasury concluded there was limited support for its creation. One negotiator involved stated, "The idea had a poor reception and there was a general feeling that we didn't really need to do it." It was noted that many investment platforms already offer strong UK-focused investment options within their existing products.
Broader Implications for Savers and Investors
The Budget is not just about ISAs. Chancellor Reeves is expected to make other adjustments to the UK's saving and investment landscape to fuel economic growth. These potential changes include:
- A potential hike in dividend taxes for shares held outside of tax-efficient wrappers like ISAs and pensions.
- A possible cut to the 0.5 per cent tax charge on shares that have recently listed on the London Stock Exchange's main market.
While investment platforms had pushed for the cash ISA limit to be halved or removed entirely to force more investment into stocks and shares, the final decision represents a more measured approach. The move signals the government's intent to rebalance the nation's savings habits without completely alienating the building society sector.
