Healey reverses Reeves' Cash ISA cut in first budget

Chancellor John Healey plans to restore the annual Cash ISA allowance to £20,000 during his first tax and spending statement. He intends to overturn a decision made by his predecessor, Rachel Reeves, which reduced the limit to £12,000 starting in April of this year.

Healey will present the change to the House of Commons on Wednesday. His strategy favors education over restriction, aiming to encourage investors to move money into stocks and shares for higher returns. He believes teaching citizens about investment advantages is more effective than cutting tax breaks on standard savings products.

The move reverses a policy designed to direct more capital into UK company stocks. City experts welcomed the change, noting that the previous cut risked deterring general saving. Banks and building societies also stand to benefit, as they rely on customer deposits to fund household and business loans.

Finance executives had warned that the lower threshold could push up mortgage rates by reducing the overall supply of available funds. Cash ISAs remain the most popular savings vehicle in the UK, exempting users from taxes on interest, income, and capital gains.

Jo Harris, chief customer and operations officer at Quilter, supported the retention of a simple £20,000 limit that savers understand. She suggested the government could add an investment-only allowance on top of the existing cap to further boost equity markets without restricting current savings.

Michael Healy, chief executive of IG Group’s consumer division, disagreed with the approach. He argued that the decision missed a chance to build long-term wealth for households. He noted that Cash ISA subscriptions grew by £26.1 billion last year, a figure four times larger than the increase in stocks and shares ISAs.

Healy stated that IG modeling shows phasing out Cash ISAs for new contributions could generate up to £610 million in extra annual tax revenue by the 2032-33 fiscal year. The Treasury declined to comment on the details, which were first reported by the Financial Times.