John Healey is expected to reverse a key Rachel Reeves policy in today's Budget, according to a pre-Budget leak reported by the Financial Times. The new Chancellor will abandon plans to cut the annual Cash ISA allowance from £20,000 to £12,000 for savers under 65 from April 2027.
U-turn on Cash ISA allowance
The decision comes after Reeves had proposed restricting under-65s to £12,000 in Cash ISAs, while keeping the overall annual ISA allowance at £20,000. This would have created a two-tier system based on age, penalising younger savers who preferred the security of cash.
Reeves had wanted to encourage savers to put more money into Stocks and Shares ISAs rather than Cash ISAs, arguing that shares typically outperform cash over the long term, despite being more volatile.
Unintended consequences
The original proposal had forced the Treasury to prepare anti-avoidance rules to prevent people circumventing the new limit. These included restrictions on transferring money from Stocks and Shares ISAs into Cash ISAs and a 22% charge on interest earned on cash held inside non-cash ISAs.
The policy also threatened banks and building societies, which rely on Cash ISA deposits to fund mortgage lending.
Further Budget concerns
Healey's proposed £13,036 personal allowance for low-income pensioners has also drawn criticism, as it is designed to protect those whose only income is the State Pension from income tax but risks unintended consequences.
Reeves's planned inheritance tax changes for unused pension funds remain a concern, as they would force grieving families to track down old retirement pots and pay tax on them within six months of death.
