Cash ISA allowance cut could deliver ‘£7billion boost’ to savers | Personal Finance | Finance
Cutting the annual tax-free limit for Cash ISAs could give some savers a major boost, with new figures suggesting it might lead to an extra £7.2billion in investment returns. That’s according to analysis by investment platform IG, which looked at what might happen if Rachel Reeves goes ahead with plans to reduce the allowance to £10,000.
Currently, savers can put up to £20,000 a year into an ISA without paying tax on interest. But IG believes that halving the limit could encourage thousands of people to move more of their money into stocks and shares ISAs instead, potentially earning far more over the long term. The firm says around one-third of Cash ISA holders currently save more than £10,000 a year.
And nearly a third of those, about 784,000 people, say they would invest the extra money if the limit were reduced.
If that happens, IG estimates that group alone could make more than £9,000 each in extra returns over five years. In total, the move could generate more than £7billion across the UK.
Michael Healy, the UK managing director at IG, said: “The Chancellor is absolutely right to tackle the UK’s overreliance on savings, starting with a product that does nothing for long-term wealth creation – the cash ISA.
“Reducing the annual allowance to £10,000 sends the right message that the government is serious about getting more people investing, and we would encourage the Government to go further by abolishing the cash ISA altogether.”
However, some building societies have warned that the move could damage mortgage lending, as they rely on deposits to fund home loans.
IG strongly disagrees. Its analysis shows that only £1.6billion of annual Cash ISA contributions go to building societies, just 0.4% of their total retail deposits.
Mr Healy added: “Our analysis refutes the claim from building societies that reducing the Cash ISA allowance to £10,000 would impact their deposits significantly.
“Suggestions that it could threaten the mortgage market are simply scaremongering. The reality is that this reform is sensible, proportionate, and long overdue. We urge the Chancellor to stick to her guns.”
The analysis used HMRC data, YouGov surveys, and forecasts for interest rates and market performance to calculate the potential gains.
Cash ISA interest was assumed to drop from 4% in 2026 to 3% by 2029, while the long-term returns of global stock markets were based on historical averages.
Nonetheless, IG warned that investing is not risk-free. It said: “The value of shares, ETFs and stocks and shares ISAs can fall as well as rise, which could mean getting back less than you originally put in.”
The Chancellor will unveil her Autumn Budget on November 26.
