Chancellor Healey Reverses Savings Policy: Cash ISA Limit Stays at £20,000

Chancellor John Healey intends to announce the retention of the £20,000 annual limit for cash Isas during his first budget statement on Wednesday. This decision reverses a policy set by his predecessor, Rachel Reeves, who planned to reduce the allowance to £12,000 starting in April 2027. The Treasury declined to comment on the change, which was initially reported by the Financial Times.

Healey is expected to address the House of Commons by arguing that financial education is a more effective method for encouraging stock market investment than reducing tax benefits on cash savings. His strategy favors persuading households to allocate funds toward shares rather than penalizing those who prefer to hold cash. The previous administration aimed to steer capital into UK company stocks through the lower limit.

The reversal is likely to benefit banks and building societies, which rely on customer deposits to fund loans for households and businesses. Banking executives had warned that a sharp cut to the cash ISA allowance could discourage saving behavior and subsequently raise mortgage rates. The sector already faces increased tax burdens in the current budget, making the preservation of the allowance a welcome development for many industry leaders.

Cash Isas remain the most popular savings product in the United Kingdom. All Individual Savings Accounts are exempt from tax on interest, income, and capital gains. Jo Harris, chief customer and operations officer at Quilter, described the retention of a simple £20,000 limit as a positive development for savers. She suggested that the government could complement this stability with an additional allowance specifically for investments, alongside enhanced financial education programs.

Not all financial sector leaders supported the decision. Michael Healy, chief executive of IG Group's consumer division, stated that the move squandered a chance to build long-term wealth for households. He noted that cash ISA subscriptions increased by £26.1 billion in the last year, a figure more than four times higher than the growth in stocks and shares Isas. Healy argued that the policy reinforces a savings culture that hinders economic progress.

Healy added that IG modeling indicates phasing out cash Isas for new contributions could generate up to £610 million in additional annual tax revenue by the 2032-33 fiscal year. This potential revenue would be raised without impacting savings that are already in place. The chancellor will present these tax and spending figures in his statement to Parliament on Wednesday.