The UK Treasury is moving forward with plans to reform cash ISAs, despite backlash from the savings sector. The proposed changes, designed to encourage more investment in equities, will likely reduce the annual deposit limit for cash ISAs, a shift that could impact millions of savers.<\/p>\n\n\n\n
Chancellor Rachel Reeves has reportedly greenlit the reforms, though the announcement is now expected later this year rather than during Labour\u2019s Spring Statement in March, according to <\/strong>The i<\/em><\/strong>. These changes will likely spark debates over their potential consequences for both individual savers and the wider financial system.<\/p>\n\n\n\n
The Treasury\u2019s proposed reforms aim to lower the tax-free savings limit for cash ISAs, which currently stands at \u00a320,000 <\/strong>annually. The intention behind this move is to encourage savers to consider other forms of investment, such as stocks and shares ISAs, which could yield higher returns. <\/p>\n\n\n\n
While the government has yet to confirm specifics, such a significant reduction would represent a major change for the 18 million people<\/strong> who currently use cash ISA<\/a>s to save tax-free. The announcement of this reform is expected later this year, possibly as part of the Autumn Budget, with consultations continuing in the interim.<\/p>\n\n\n\n
The planned reduction in the cash ISA limit has raised concerns among savings providers and financial institutions. Experts argue that cutting the deposit threshold could have unintended consequences. <\/p>\n\n\n\n
According to Tom Selby, director of public policy at investment firm AJ Bell, a drastic cut to the cash ISA limit may not necessarily lead to more long-term investments. He stressed that there is no guarantee that the money previously saved in cash ISAs would be directed into equities.<\/p>\n\n\n\n
Furthermore, trade bodies such as the Building Societies Association have voiced concerns about the knock-on effects that reduced cash ISA deposits could have on the broader financial system. <\/p>\n\n\n\n
Banks <\/a>and building societies rely on these deposits <\/strong>to fund loans to businesses and households. A reduction in cash ISA savings could lead to less money flowing into these institutions, potentially limiting access to loans and driving up mortgage rates.<\/p>\n\n\n\n