Rachel Reeves has scrapped plans to cut the tax-free Isa allowance, bowing to growing pressure from the City.
The Chancellor confirmed that the annual £20,000 ISA limit will remain unchanged, offering reassurance to millions of savers.
The U-turn follows a report of strong opposition from banks to the proposed changes, which included slashing the allowance to as little as £4,000 in a bid to drive investment into the stock market and stimulate economic growth.
Speaking to the BBC on Monday, Ms Reeves said: “I’m not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.”
Rachel Reeves has reaffirmed her commitment to maintaining the £20,000 tax-free Isa allowance, while signalling potential changes aimed at encouraging greater investment in equities.
“Right now, a lot of savings are going into cash or bonds when they could be earning better returns in equities and the stock market,” the Chancellor told the BBC. “But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”
Cash Isas, used by around 18 million people, allow savers to earn interest without paying income tax. However, in February, Economic Secretary to the Treasury Emma Reynolds warned the House of Lords that these products were drawing capital away from the London Stock Exchange. “Why have we got hundreds of billions of pounds in cash Isas? We have failed to drive an investment culture,” she said.
The Treasury later confirmed that a broader review of the Isa system would take place ahead of the Autumn Budget, with Reeves previously telling MPs that a full overhaul “would be worthwhile.”
Although the Chancellor has ruled out cutting the £20,000 limit, she left the door open to other reforms that could steer savers towards stocks and shares Isas to help revive the UK’s capital markets.
Such reforms have already won backing from major investment firms, including Fidelity International.
On Monday, Chancellor Rachel Reeves said: “One of the reasons we’re reviewing the advice and guidance that financial firms can offer is to ensure people are making informed choices about how to invest their money, whether that’s through pensions or ISAs.”
However, the decision to maintain the current Isa allowance follows strong pushback from banking leaders. Last week, executives warned Economic Secretary Emma Reynolds that most savers prefer the security of cash over the volatility of shares. They cautioned that lowering the £20,000 Isa limit would likely push households to move their savings into standard bank accounts, undermining efforts to channel more capital into the stock market.
