UK savers are anxiously awaiting next week's Autumn Budget, with speculation mounting that Chancellor Rachel Reeves could announce a significant reduction to the cash ISA allowance.
What changes are being considered for cash ISAs?
Rumours have circulated for months that the Treasury might target the current £20,000 annual ISA limit. Initial reports suggested the Chancellor was considering cutting the cash ISA allowance to as little as £4,000, while later indications pointed to a potential reduction to £10,000. The most recent discussions suggest a figure of £12,000 is now being considered.
The Financial Times reports that despite these ongoing discussions, the Treasury has made no official announcement, and the Chancellor hasn't ruled out implementing an even lower figure. The potential move appears driven by government pressure to encourage more investment in the stock market rather than traditional savings accounts.
Why is there opposition to cutting ISA limits?
Building societies have voiced strong concerns, arguing that reducing the cash ISA limit could harm savers and potentially reduce mortgage availability. This is because lenders rely heavily on deposits, including those from cash ISAs, to fund their mortgage lending activities.
Consumer champions including Martin Lewis have also expressed scepticism, suggesting that cutting ISA allowances is unlikely to achieve the desired effect of pushing people toward stock market investments. The popularity of cash ISAs remains substantial, with latest data showing 9.9 million cash ISA accounts were paid into during the 2023/24 tax year.
Understanding ISAs and current savings options
An Individual Savings Account (ISA) allows savers to earn interest without paying tax on their returns. This contrasts with standard savings accounts where basic-rate taxpayers can earn up to £1,000 in interest tax-free, while higher-rate taxpayers have a £500 allowance, and additional-rate taxpayers receive no personal savings allowance at all.
The main ISA types include cash ISAs, stocks and shares ISAs, Lifetime ISAs, and innovative finance ISAs. While the overall ISA allowance currently stands at £20,000 across all accounts, some products like Lifetime ISAs have lower individual limits of £4,000 per tax year.
For those considering alternatives, easy-access savings accounts currently offer competitive rates, with the top easy-access cash ISA paying 4.56% from Trading 121, while the best one-year fixed cash ISA offers 4.35% from Isbank via Meteor. Regular savings accounts provide even higher returns, such as Principality Building Society's 8% fixed for six months on monthly deposits up to £200, though these typically have stricter withdrawal conditions.
As the Autumn Budget approaches, millions of British savers will be watching closely to see whether the government proceeds with what would represent one of the most significant changes to savings policy in recent years.
