ISA ‘changes’ update as Rachel Reeves under fire on new ‘£12,000’ plan | Personal Finance | Finance
MPs have warned that Rachel Reeves’ plan to cut the cash ISA allowance is unlikely to persuade savers to put their money into stocks and shares, despite the Treasury insisting the move will encourage long-term investing.
The Government has now published its response to a Treasury Committee report on cash ISAs, after MPs raised concerns last October about proposals to reduce the tax-free limit.
In her November Budget, the Chancellor announced that the cash ISA allowance would be cut to £12,000 a year for under-65s, down from the current £20,000. The change is due to come into force on April 6, 2027.
Under the plans, savers under 65 will only be able to shelter £12,000 a year in cash, with any remaining allowance having to be used in stocks and shares ISAs.
Ministers argue the reform is designed to shift billions of pounds out of low-return savings accounts and into investments, with around 40 per cent of the £726 billion currently held in ISAs sitting in cash rather than shares.
But MPs on the Treasury Committee have repeatedly questioned whether cutting the allowance will have the desired effect.
Before the Budget, the committee warned that: “Reducing the cash Isa’s tax-free allowance, and the publicity which would have to go alongside such a reduction, is unlikely to increase the level of saving in shares [in] the UK.”
Responding to the committee, Economic Secretary to the Treasury Lucy Rigby said the policy was part of a wider push to encourage investment.
She said: “The Government wants to see more people benefit from the higher returns and long-term financial resilience that investing can provide.
“That is why the Chancellor has set out a series of bold measures to get Britain investing again, including the reforms to Isas made in the Budget.”
However, the Chair of the Treasury Committee, Dame Meg Hillier, said MPs remain unconvinced.
She said: “The Treasury’s ambition is commendable, but I remain to be convinced that these reforms will drive the cultural change that Ministers want to see.
“In her proposed changes, the Chancellor risks complicating the ISA landscape and confusing consumers.
“It is now clear where the Government stands on the issue. The next step is to see how this complex product will be delivered in the real world.”
Critics also point out that while investing has historically delivered higher returns over the long term, many savers prefer the certainty of guaranteed interest from cash ISAs and remain wary of market risk.
MPs will now scrutinise how the reforms are implemented ahead of the 2027 start date, amid warnings that the changes could leave savers confused rather than converted to investing.
