How Rachel Reeves could change the cash ISA
News that Chancellor Rachel Reeves is preparing to launch a consultation on reforms to the ISA regime in the coming weeks has swept the City, re-kindling speculation of cuts to the cash ISA limit.
In the Spring Statement earlier this year, Reeves confirmed that ISA reform was on the horizon, with changes to the regime expected to be announced in the Autumn Budget or July’s Mansion House speech.
Pensions minister Torsten Bell recently pledged that the government will not scrap the cash ISA, but did state that the government was weighing whether to motivate a reduction in the unusually high amount invested in cash.
“Even though they are important, and obviously there is no question – we are going to be continuing cash ISAs – but the volume of it is high, and people in general could earn higher returns elsewhere,” he told Citywire.
Could the ISA limit be cut?
City broker Peel Hunt recently recommended cutting the cash limit to £5,000, while rumours have circulated the City for months that a £4,000 limit will be instituted.
Other proposed changes to the investment regime have included mandating a minimum 50 per cent exposure to UK equities in stocks and shares ISAs, as well as combining all of the ISAs together.
AJ Bell has been a strong campaigner for simplification of the regime, arguing that the combination of cash, stocks and shares, junior and innovative finance ISAs in a single product would reduce complexity in the regime and encourage greater investment.
Former Chancellor Jeremy Hunt even proposed plans for a ‘British ISA’, would have allowed savers to invest an extra £5,000 tax-free in UK equities, on top of the £20,000 ISA allowance, though this was ultimately scrapped.
But so far, the government has been reluctant to specify any details of the proposed changes to the investment wrapper, even as Reeves is expected to launch a consultation in the coming weeks.
Speaking at a hearing last month, City minister Emma Reynolds said: “We will be looking at the advantages and perhaps downsides of all the different ISAs in the round.”
Reeves was similarly vague in the Spring Statement, saying that the government was looking at options to reform to “get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission”.
The reforms to ISAs have come from a desire to boost a culture of retail investment in the UK, after domestic shareholding has continued to fall.
In addition, campaigns against the cash ISA have noted that £10,000 invested in the wrapper five years ago would have yielded just £8,713 in today’s money due to the impact of high inflation, compared to £12,249 for a Stocks and Shares ISA.
Just over 30 per cent of Brits use a cash ISA, depositing £3.6bn into the vehicles in February 2025, compared to just 16 per cent who use the stocks and shares vehicle.