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Reeves to cut cash ISA allowance in push to revive UK capital markets

by July 1, 2025
July 1, 2025
Reeves to cut cash ISA allowance in push to revive UK capital markets

Chancellor Rachel Reeves is preparing to unveil a reduction in the tax-free allowance for cash ISAs, as part of a broader move to channel household savings into London-listed firms and reinvigorate the UK’s capital markets.

According to the Financial Times, Reeves will use her Mansion House speech to announce a cut to the current £20,000 tax-free cash savings limit available under the Individual Savings Account (ISA) wrapper. While the total ISA limit is expected to remain unchanged, the shift will likely reduce how much savers can shelter in cash ISAs specifically.

The controversial reform is aimed at steering more of the UK’s estimated £300 billion in cash ISA holdings toward long-term investment in equities—particularly those listed in London. The Treasury hopes this will unlock fresh capital for UK businesses while potentially delivering better returns for savers over time.

Advocates of the move argue that cash ISAs, while popular, offer limited returns compared to stocks and shares ISAs, especially over the long term. Charles Hall, a longtime supporter of ISA reform, told City AM: “It makes sense for the Chancellor to address the limits on Cash ISAs to encourage savers to invest in products with higher returns. We should also ensure that taxpayers’ money is focused on encouraging investment in UK companies.”

The proposed change comes just a week after trading platform IG Group launched a “Save our Stock Market” campaign, which included a proposal to abolish cash ISAs altogether.

However, the policy is already facing stiff opposition from major investment and savings institutions. AJ Bell’s CEO Michael Summergill said he was “fundamentally opposed” to the cut and warned it would “negatively impact savers without achieving the desired effect of getting people investing.” AJ Bell’s research found that only 25% of savers would redirect extra funds into UK equities if the cash ISA limit were cut.

Sarah Coles, head of personal finance at Hargreaves Lansdown, echoed the concern, noting that cash ISAs often serve as a gateway product for new savers. “This is an issue which requires a carrot, not a stick, approach. We know through extensive research that the barriers to investing are behavioural, so it’s through encouragement and increased confidence that we will increase the number of retail investors.”

She warned that limiting how much can be moved from cash into stocks and shares ISAs could have the unintended consequence of reducing overall investment uptake.

The exact size of the reduction has not yet been confirmed. Reeves has previously said she would not lower the overall £20,000 ISA cap but has stopped short of ruling out changes to the cash component specifically.

If implemented, this would mark the biggest shake-up to the UK’s flagship tax-free savings product since its creation by Gordon Brown in 1999. The Treasury declined to comment.

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Reeves to cut cash ISA allowance in push to revive UK capital markets

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