Cutting cash Isa limit will not boost stock market, MPs warn Rachel Reeves | Budget 2025
MPs have warned the Chancellor that cutting the annual cash Isa allowance will not encourage many savers to switch to shares but could increase mortgage costs.
Adults can deposit up to £20,000 a year into a tax-free Isa and split the money as they wish between cash and stock market investments. In the 2023-24 tax year, 66% of all contributions went to cash savings.
Earlier this year Rachel Reeves paused plans to cap the cash Isa allowance but in the run-up to next month’s budget speculation has re-emerged that the amount could be cut to £10,000 in a bid to support growth.
The chancellor should not cut the cash Isa allowance, arguing it is unlikely to encourage people to put their money into the stock market, the House of Commons Treasury committee said on Saturday. Instead, lawmakers said better financial education is needed so people can make informed decisions about their savings.
In a report based on interviews with experts, the committee quoted Martin Lewis, founder of the MoneySavingExpert website, as saying: “The idea that if you stop people hoarding cash they will invest their money in stocks and shares is wrong. You need a cultural change to get people to invest in stocks and shares.”
The committee heard building society bosses warned that reducing the cash Isa allowance would have negative impacts on homebuyers.
They said building societies relied on savings deposits to fund mortgage loans and without inflows the market would become less competitive, potentially driving up rates.
Committee chair Meg Hillier said MPs supported the Chancellor’s desire to help savers achieve better returns through informed financial decisions, “but we are a long way from there”.
He said: “This is not the right time to reduce the Cash Isa limit. Instead the Treasury should focus on ensuring people are equipped with the information and confidence to make informed investment decisions.”
He added that he feared that without better financial education, “the chancellor’s attempts to transform the UK’s investment culture will not deliver the change he seeks, hitting savers and mortgage borrowers instead”.
Although the Chancellor will not announce his budget until November 26, speculation about its contents is already running high. A possible cut to Cash Isa limits is reportedly just one of the measures being considered, alongside changes to the tax treatment of limited liability partnerships, changes to stamp duty and inheritance tax, and a manifesto-busting increase in income tax.
The financial backdrop to the November announcement suggests Reeves will face difficult decisions to balance the books. The Office for Budget Responsibility’s recent decision to cut its forecasts for economic productivity is expected to cost the chancellor around £20bn a year.
