• Analysis
Healey set to scrap cut to cash Isa allowance in first budget
Chancellor John Healey is expected to use his first budget to drop a planned cut to the cash Isa allowance from £20,000 to £12,000 a year, reversing a decision taken by his predecessor Rachel Reeves.
What the planned cut would have done
Rachel Reeves, before John Healey took over at the Treasury, had decided to reduce the annual cash Isa allowance from £20,000 to £12,000 from April. The aim was to steer more money into UK company stocks.
Cash Isas are the UK's most popular savings product. All Isas are exempt from tax on interest, as well as income and capital gains taxes.
- •Allowance: £20,000 cut to £12,000
- •Start date: April
- •Purpose: more money flowing into UK company stocks
Why finance bosses objected
Finance bosses had warned the cut could deter consumers from saving and push up mortgage rates. City experts welcomed news that the chancellor would overturn the decision.
The reversal is likely to please banks, which already face higher taxes in the budget, and building societies, which rely on deposits to fund household and business loans.
The case on both sides
Jo Harris, chief customer and operations officer at Quilter, backed keeping the limit: "There is a positive in retaining a simple £20,000 allowance that savers understand." She suggested that if the chancellor prefers carrot to stick, the government could consider an additional investment-only allowance on top of the £20,000 Isa limit, alongside better financial education.
Not everyone is celebrating. Michael Healy, chief executive of IG Group's consumer division, said: "The chancellor has squandered a golden opportunity to help British households build long-term wealth." He noted cash Isa subscriptions surged by £26.1bn last year, more than four times the increase in stocks and shares Isas, and said IG modelling suggests phasing out cash Isas for new contributions could generate up to £610m in additional annual tax revenue by 2032-33 without touching existing savings.
What happens on Wednesday
Healey is expected to tell the House of Commons on Wednesday, in his tax and spending statement, that educating people about the advantages of investing in stocks and shares is better than reducing tax breaks on savings. The Treasury declined to comment on the news, which was first reported by the Financial Times.
