Chancellor John Healey has reversed plans to cut the annual cash Isa allowance for savers under 65, keeping the limit at £20,000, and announced a new starter Isa aimed at first-time investors.
The decision overturns a measure announced by former chancellor Rachel Reeves in last year's autumn Budget, which would have reduced the adult cash Isa allowance from £20,000 to £12,000 from April 2027 as part of efforts to encourage stock market investment.
Industry reaction to the U-turn
The reversal was welcomed by many savings and investments providers, although some raised concerns that the new starter Isa could add further complexity to the Isa system.
Tom Riley, Nationwide Building Society's group director of retail products, said: "We welcome the decision to retain the full £20,000 cash Isa allowance.
"More than one in three under-65s saving into a cash Isa with us save over £12,000, demonstrating that it isn't just older savers who make significant use of the allowance.
"Cash Isas help people save tax-efficiently while providing important funding for mortgage lending, including to first-time buyers."
Calls for simplicity
Steven Levin, chief executive of wealth manager Quilter, said: "Abandoning the planned cash Isa cut is welcome.
"Encouraging more people to invest is an important ambition, but restricting saving was never the best way to achieve it.
"The focus should be on making investing more attractive and accessible, not making cash saving harder."
But referring to the starter Isa plans, he said: "Every new Isa label risks diluting the simplicity that is one of the great strengths of the Isa brand.
"The Government should use this moment to simplify the Isa landscape, not add to it."
Brian Byrnes, director of personal finance at Moneybox, said: "While the devil will be in the detail, and we are cautiously optimistic about the direction of travel to incentivise investing, rather than punishing saving, adding yet another Isa to an already complex ecosystem does set off alarm bells."
Kevin Brown, savings specialist at Scottish Friendly, said: "It's surprising, and hugely disappointing, that the Chancellor has abandoned the planned reduction in the cash Isa allowance.
"We supported that change as a step towards encouraging more people to consider investing and building better financial resilience across households in the UK."
Tom Selby, director of public policy at AJ Bell, said: "Given the prime minister's main focus is on easing cost-of-living pressures, we shouldn't be surprised the cash Isa cut is set to be unceremoniously ditched."
He said Mr Healey "deserves credit for seeing this iceberg coming".
Katie Horne, banks relationship manager at Flagstone, said: "This is a sensible move by the Treasury that will help millions of savers make better savings decisions for themselves and their families' futures."
Susannah Streeter, chief investment strategist at Wealth Club, said: "People become investors when they feel informed and supported, not when they're pushed."
Tax changes and subscription figures
Chairwoman of the Treasury Committee, Dame Meg Hillier, said: "The decision to cancel the planned changes to cash Isas is a victory for common sense.
"As the Treasury Committee report set out last year, these over-complicated changes would have caused confusion for customers and led to problems for building societies who rely upon the money held in cash Isas.
"I am delighted the Chancellor has listened to concerns and cancelled the plans.
"Now the focus needs to be on improving financial education and helping people to access good advice on how to make the most of their savings."
Figures released by HMRC in September showed around £135.7 billion was subscribed to adult Isas in the tax year 2024-25 – a £32.7 billion annual increase.
The rise was driven by a rise in cash Isa subscriptions, which grew by 37.5% or £26.1 billion. Stocks and shares Isa subscriptions saw a 19.7% or £6.1 billion annual increase, and Lifetime Isa subscriptions had a 20.1% or £472 million rise.
Haydn Thomas, chief executive of Cornerstone Finance Group, said: "The reversal of plans to cut the annual cash Isa allowance from £20,000 to £12,000 is to be welcomed, but the Chancellor also announced an increase in the rate of tax on income from savings by two percentage points from April."
The Budget documents said: "Budget 2025 increased the rates of tax on savings and property income by two percentage points across all tax bands from April 2027.
"The Government will increase these rates by a further two percentage points from that date.
"This is a fair and proportionate approach, and 84% of income tax payers will be unaffected by these changes."
Around half of the revenue raised from the change is expected to come from the top 10% of households, according to the Budget documents.
