Chancellor Rachel Reeves is preparing to deal a significant blow to millions of savers by slashing the annual tax-free cash ISA allowance from £20,000 to £12,000 in her crucial Budget statement on Wednesday.
Budget Measures Target Wealth and Savings
The dramatic reduction in the ISA limit forms part of a series of tax hikes designed to fill a £22 billion black hole in the public finances. According to sources familiar with Budget preparations who spoke to the Financial Times, the Chancellor had initially considered an even more severe cut to £10,000 before settling on the £12,000 figure following months of intense debate.
The move is intended to push more households toward investing their savings in the UK stock market rather than keeping cash in tax-free accounts. A cross-party Treasury select committee report revealed last month that British households have £360 billion tied up in cash ISAs, with many preferring the security of these accounts over riskier stock market investments.
Wealth Taxes and Industry Levies
In addition to the ISA changes, the Chancellor is set to introduce a new "mansion tax" targeting thousands of Britain's most expensive properties. This forms part of a broader package of wealth taxes that will also include a profits tax on gambling companies and a levy on bank profits.
The Budget will also extend the sugar tax to include pre-packaged milkshakes and lattes, though drinks made fresh in cafes and restaurants will remain exempt. Health Secretary Wes Streeting is expected to announce the removal of the exemption for milk-based drinks while introducing a "lactose allowance" to account for natural sugars in milk.
Political Pressure and Backbench Concerns
Reeves faces significant challenges in rallying support from her own party, with many Labour MPs growing increasingly frustrated about the prospect of tax rises less than two years into the government's term. At a gathering of the Parliamentary Labour Party on Monday night, the Chancellor urged unity, telling MPs that "politics is a team sport" while promising the Budget would be "progressive."
Opposition leaders have been quick to criticise the plans, with Tory shadow chancellor Sir Mel Stride declaring: "Hardworking savers shouldn't be facing a tax raid to fund Labour's addiction to ever more welfare spending."
Experts warn that a backbench rebellion that scuppered £5 billion worth of planned welfare cuts earlier this year has added to Reeves' difficulties, forcing her to find billions of pounds in additional savings elsewhere.
The Chancellor will deliver her highly anticipated Budget statement in the House of Commons on Wednesday afternoon, beginning after Prime Minister's Questions at approximately 12:30 PM.
