In the run-up to the November 2025 Budget, Chancellor Rachel Reeves is facing mounting pressure from MPs, consumer advocates, and financial institutions over potential plans to slash the cash ISA tax-free allowance. The proposal, which could see the annual limit halved from £20,000 to £10,000, has ignited a fierce debate about savings, investment, and the wider health of the UK economy.
For millions of British savers, the Individual Savings Account (ISA) is a household staple—a way to shelter returns from the taxman and, for many, a vital nest egg. Cash ISAs, in particular, are the most widely used type, with around 14.4 million people holding one and a total of £360 billion stashed away across the country, according to a recent Treasury Select Committee report cited by BBC News and NationalWorld.
The government’s rationale for the proposed cut is straightforward: encourage more people to move their savings into stocks and shares, thereby boosting investment in the UK economy. As City A.M. reports, Chancellor Reeves and her team are considering the change as part of a broader mission to drive capital into the London stock market and support capital-starved firms. The hope is that by reducing the cash ISA allowance, savers will be nudged toward riskier, higher-yielding investments, ultimately fostering what the Chancellor calls “an investment culture.”
But the backlash has been swift and broad. The influential Treasury Select Committee, chaired by Dame Meg Hillier, released a stinging report on October 24, 2025, warning that “cutting the cash ISA allowance is unlikely to incentivize people to invest their cash in stocks and shares.” The committee’s findings, echoed across multiple media outlets, argue that savers—especially older ones—tend to be risk-averse and would not simply shift their money into equities if the cash ISA limit were cut. Instead, many would likely move their savings into other cash products, potentially exposing themselves to new taxes on their returns.
“This is not the right time to cut the cash ISA limit,” Dame Meg Hillier told BBC News. “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.” She emphasized that the government should focus on “a comprehensive effort to genuinely improve financial education and establish accessible, high-quality financial advice and guidance for people.” Without this foundation, Hillier warned, “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.”
The committee’s concerns are not just theoretical. Building societies, which rely on cash ISAs as a critical funding source for mortgage lending, have voiced strong opposition. The Building Societies Association (BSA) warned in a letter to the Chancellor that reducing the allowance could increase borrowing costs and undermine Labour’s ambitious housebuilding targets. Charlotte Harrison, chief executive of home financing at Skipton Group, told NationalWorld, “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.”
Jeremy Cox, head of strategy at Coventry Building Society, echoed these sentiments, highlighting the simplicity and popularity of ISAs among savers: “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.”
The numbers paint a stark picture. According to AJ Bell, almost £100 billion is held in cash ISAs by individuals with £20,000 or more who do not invest in stocks and shares. The average stocks and shares ISA account is worth over £65,000, while a typical cash ISA account holds under £13,500. The Treasury Select Committee’s report notes that two-thirds of ISA contributions in the 2023-24 tax year were directed to cash ISAs, underscoring their dominance in the savings landscape.
The political fallout has been equally intense. Shadow Chancellor Mel Stride branded the proposal a “tax raid,” arguing in the Mail that Reeves “has blown a colossal hole in the public finances and is now scrambling around for ways to make the numbers add up.” Conservative shadow chancellor Sir Mel Stride further criticized the plan, calling it “nothing less than a savings tax” and insisting, “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.”
For her part, Chancellor Reeves has sought to strike a conciliatory tone. Speaking to BBC News, she acknowledged the importance of balancing policy changes: “My understanding is that the report says that changes to ISAs shouldn’t be made in isolation of other policies. I’ll be setting out any tax changes in the budget in November. And of course we need to get that balance right.” She added, “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.”
Reeves is also contending with a sizeable Budget shortfall, estimated at around £22 billion, and a government spending cut target of £115 billion, as reported by City A.M.. She has pledged not to borrow to fund day-to-day spending and to reduce government debt as a share of national income by the end of the current parliament. This fiscal pressure has fueled speculation about tax rises or spending cuts, with the cash ISA allowance reduction seen as one possible lever.
Yet, industry experts remain skeptical that the move would achieve its intended goals. Tom Selby, director of public policy at AJ Bell, told City A.M., “While the chancellor’s policy goal of boosting retail investing in the UK is the right one, slashing the Cash ISA allowance would be a clumsy and ineffective way to go about it.”
As the November Budget approaches, the Treasury has yet to make a final decision. Reeves has reiterated that no changes will be made in isolation and that a range of options are being considered to “get the balance right between cash and equities.” For now, the fate of the cash ISA limit—and the savings of millions—hangs in the balance, with policymakers, industry leaders, and ordinary savers all watching closely for the government’s next move.
Amid political wrangling and economic uncertainty, the debate over the cash ISA allowance has become a litmus test for how the UK values saving, investment, and financial security in a changing world.
