Cash ISA allowance change is buzzing as the UK autumn budget 2025 nears. Rumors suggest Chancellor Rachel Reeves might slash the tax-free limit from £20,000 to £10,000 to push people toward stocks and shares ISA options. But a group of MPs warns it could backfire, hurting savers and the housing market. The Treasury Select Committee report says such an ISA allowance reduction would not boost investing and could raise mortgage prices. With the Building Society Association (BSA) findings showing £190bn in cash ISA deposits funding 39% of £485bn in mortgages, a cut could mean 60,000 fewer loans and £7bn less GDP growth over five years. Reeves has hinted at changes but stressed balance. A Yahoo Finance UK poll shows 82% of 320 readers against it. Here’s why the debate matters and what it could mean for your savings.
Why the Cash ISA Allowance Change Is in the Spotlight
The cash ISA tax-free limit of £20,000 lets savers shield interest from tax, a key tool for low-risk growth amid 5% inflation. UK savings policy changes aim to shift folks to stocks and shares ISA for higher returns, but critics argue it ignores why many choose cash: Safety. Reeves’ Rachel Reeves ISA policy, teased for the UK autumn budget 2025, seeks “good returns” on savings, noting UK’s low yields vs. peers. But the Treasury Select Committee report, out last weekend, cautions against isolation – pair any ISA allowance reduction with broader reforms, or risk less competitive finance products.
BSA findings highlight the stakes: Cash ISAs fund nearly 40% of mortgages. A £10,000 cap could shrink deposits by £95bn, cutting loans and tax revenue by £2.5bn over five years. Tom Selby of AJ Bell calls it “clumsy” – better to simplify cash ISA vs stocks and shares ISA barriers than penalize safe savers.
Reader Poll on ISA Allowance: 82% Say No to Cuts
In a survey conducted by Yahoo Finance UK on the cash ISA allowance change, out of 320 peoples:
- 82% disagreed with reductions.
- 11% supported it.
- 7% were undecided.
This mirrors broader sentiment – savers want protection, not pressure to risk more. With 11 million cash ISA holders, an ISA allowance reduction could hit middle-income families hardest, who rely on it for emergency funds or kids’ education.
Potential Impacts of a Cash ISA Allowance Change
A £10,000 cap under Rachel Reeves ISA policy could save the Treasury £1bn yearly in lost tax but spark backlash. Pros: Nudges 20% of cash holders to stocks and shares ISA, potentially growing retirement pots by 5-7% long-term. Cons: Squeezes building societies, raising mortgage rates by 0.5% and slowing home buys. UK savings policy changes need nuance – perhaps tiered limits or incentives for mixed ISAs.
The Treasury Select Committee report urges holistic fixes: Simplify rules, boost financial education, and keep cash ISAs viable. BSA findings warn of GDP drag – fewer homes mean less spending on furniture or renovations.
Common FAQs
A: £20,000 per year – you can split it between cash and stocks and shares ISA as you like.
A: To push savers toward higher-return stocks and shares ISA, as UK savings yields lag global peers, per Rachel Reeves ISA policy goals.
A: An ISA allowance reduction won’t boost investing and could harm mortgages – pair it with other UK savings policy changes for balance.
A: BSA findings show it could cut deposits by £95bn, reducing loans by 60,000 and GDP by £7bn over five years.
A: 82% oppose cuts – they want protection for safe savings, not forced risks.