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A powerful committee of MPs has urged the government not to cut the cash Isa limit in the hope of persuading more people to invest in stocks and shares, saying such a move would be unlikely to incentivise savers. The Treasury Committee said the focus instead should be on improving financial literacy and enhancing access to good advice and guidance, so people can make informed decisions with their savings. The committee warned that, as well as the direct impact for cash Isa savers, a potential reduction in the allowance could also backfire in other ways. Building societies depend on cash Isa savings as a critical funding source for their mortgage lending, and the committee said if this was reduced, it could mean a less competitive market for financial products and higher prices for consumers. Rumours that the cash Isa limit could be reduced have been circulating for months, with recent speculation suggesting a £10,000 annual limit was under consideration. It is understood several potential options have been mulled over. More than 14 million people in the UK are thought to have more than £10,000 saved in cash, and the government believes some of this could be invested in the stock market to improve people’s financial health. The current annual Isa limit is £20,000, of which all can be put into cash if savers wish. Earlier this year, the then economic secretary to the Treasury, Emma Reynolds, told the committee the government was ‘looking at striking a better balance between cash and equities’ for savers. The Treasury Committee said in the 2023-24 tax year, two-thirds of Isa contributions were to cash Isas, bringing total cash Isa holdings to £360 billion. The average cash Isa subscription in 2023-24 was £6,993, the committee’s report said. It said: ‘With 66% of all Isa subscriptions directed to cash Isas in the 202324 tax year, cash Isas are the most widely used type of Isa. Some 14.4 million people hold a cash Isa and no other type of Isa. ‘The Building Societies Association, a representative trade body, described cash Isas as a ’policy success’, which helped ’consumers to achieve their savings goals’ and played ’an integral role in the UK savings market’ for decades.’ The report also highlighted various surveys suggesting many savers would move their money to other cash savings, which could attract tax on their returns, if there was a decrease in the cash Isa limit. It said: ‘The government’s ambition to encourage long-term investment by retail savers is in the interests of both savers and the wider economy. ‘However, reducing the cash Isa allowance is unlikely to drive a significant transfer of cash savings into investment products.’ Committee Chair Meg Hillier said: ‘The committee is firmly behind the chancellor’s ambition to create a culture in the UK where savers are sensibly investing their money and getting better returns through well-informed financial decisions. But we are a long way from that point. ‘A comprehensive effort to genuinely improve financial education and establish accessible, high-quality financial advice and guidance for people should be the Treasury’s priority. ‘This government is meant to be supportive of mutuals, with a manifesto commitment to grow the sector, so it must carefully consider how changes could badly impact building societies, which provide affordable mortgages for so many. ‘This is not the right time to cut the cash Isa limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions. Without this, I fear that the Chancellor’s attempts to transform the UK’s investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers.’ Some building societies have previously voiced opposition to any potential cut in the annual cash Isa allowance. Charlotte Harrison, chief executive of home financing at Skipton Group, said previously: ‘Building societies, which fund over a third of all first-time buyer mortgages, rely on retail deposits like cash Isas to fund their lending. If Isa inflows fall, the cost of funding is likely to rise, and that means mortgages could become both more expensive and harder to access. ‘That risks derailing the government’s own target of building 1.5 million homes, a goal that depends on buyers being able to secure affordable mortgage finance. ‘At Skipton, we back getting more people to invest, absolutely. But not by penalising savers who want low-risk, flexible options. Cash Isas work. Undermining them doesn’t. ‘What’s needed now is a government-supported, industry-led campaign to boost financial awareness, helping people make confident choices about when to save and when to invest.’ Jeremy Cox, head of strategy at Coventry Building Society, said previously: ‘The simplicity of the Isa is one of its greatest strengths savers can put in up to £20,000 every year, switch between the stock market or cash, or have a mix of the two. ‘The Isa remains one of the most popular ways to save or invest and our members keep telling us how unpopular any change to their annual cash allowance would be.’ Chancellor Rachel Reeves said: ‘We want to help people to be able to save for mortgages, but we want people to get better returns on the money they’re investing, to put money in an Isa or indeed in a pension means that you’re sacrificing spending today to save for the future. ‘And at the moment, often returns on savings and returns on pensions are lower than in comparable countries around the world, and I do want to make sure that when people put something aside for the future, they get good returns on those savings.’ It is understood that a number of possible options are being considered to get the balance right between cash and equities, and no decisions have yet been made. Conservative shadow chancellor Mel Stride said: ‘It’s no surprise the Treasury Select Committee is warning against cutting the cash ISA allowance because Labour’s plan is nothing less than a savings tax. ‘Rachel Reeves wants to punish people who do the right thing by saving for their future. That’s wrong. Saving should be rewarded, not taxed. ‘If Rachel Reeves had a plan and a backbone, she would control spending not raise taxes.’ By Vicky Shaw, PA Personal Finance Correspondent Press Association: Finance source: PA Copyright 2025 Alliance News Ltd. All Rights Reserved.
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