The cash Isa allowance will remain at £20,000, This is Money understands, after Rachel Reeves put the brakes on plans to cut it.
The Chancellor was widely expected to announce plans to slash the £20,000 tax-free allowance in her Mansion House speech on Tuesday, but has changed tack sources suggest.
Savers will still be able to put up to £20,000 a year into cash Isas with all the interest earned on savings being free from tax.
The move comes after a furious backlash from savers over rumoured plans to slash the tax-free savings allowance and the Daily Mail and This is Money’s Hands off Cash Isas campaign.
It was thought the allowance could be cut to £4,000 or £5,000 in a bid to get cash savers investing in the stock market and boost the economy. A raid on cash Isas would also boost the £6billion the Treasury rakes in from tax on savings interest each year.
Matthew Carter, head of savings and mortgages at Coventry Building Society, which has backed the campaign to save cash Isas, said: ‘Millions of savers will be able to breathe a sigh of relief if the Chancellor has decided to change course on cash Isas.
‘Our members have told us time and again how unpopular a reduction to the tax-free savings limit would be. Slashing the cash Isa allowance would be all stick and no carrot.’
Scrapped: Chancellor Rachel Reeves is understood to have u-turned on plans to cut the cash Isa allowance from £20,000
The Chancellor is now understood to be seeking to consult more widely with banks and building societies about the best way to shift more money into investments.
Although some fund management and investment firms have lobbied for the cash Isa limit to be cut, there has been widespread criticism of the suggestion from investing platforms, banks, building societies and organisations representing savers.
Despite this, until now a cash Isa cut was considered nailed on in the Chancellor’s Mansion House speech. However, there are concerns the reprieve may only be temporary.
Sarah Coles, of Hargreaves Lansdown, said: ‘There remains the risk that the cash Isa will be in the frame again in the run into the Budget.
‘If there are changes to the framework, there is the hope this will focus on positive opportunities to improve Isas, rather than removing incentives to support investing and saving.
The Government is keeping all aspects of savings policy under review as the Chancellor scrambles to fill a black hole in the country’s balance books, it is understood.
The news will offer solace for savers who will not see any changes to the cash Isa for now, though wider Isa reforms have not been ruled out.
Reeves has now been urged to commit to keeping the cash Isa allowance or state whether she does plan to reduce it, to stop uncertainty and discourage savers from acting on speculation.
The u-turn comes after fierce backlash to the alleged changes to the cash Isa allowance from savers and industry figures alike.
Earlier this week The Building Societies Association penned a letter to the Government warning restrictions imposed on cash Isas could have unintended consequences on the housing market.
Namely, reducing funding for lending, driving up mortgage prices and triggering a housing market downturn.
‘This,’ it says, ‘would undermine efforts to stimulate economic growth, including the Government’s commitment to delivering 1.5million new homes’.
Adam French, consumer expert at rates scrutineer Moneyfacts Compare said the move would have sparked ‘chaos in the housing market’ due to mortgage costs rising.
A Treasury spokesman said: ‘Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.’
Now commit to leaving cash Isas alone, says JEFF PRESTRIDGE
After months of speculation – and campaigning by The Daily Mail and This is Money – the Chancellor has put a pause on slashing the cash Isa allowance.
Commonsense, not something that Ms Reeves has demonstrated in abundance since becoming Chancellor, has prevailed. Hurrah, twenty thousand times over.
Jeff Prestridge: Commit now
As we – and others such as the chirpy Building Societies Association have been saying for most of this year – cutting the annual cash Isa limit from £20,000 to £4,000 never made sense.
In a month of Sundays, it would not have persuaded more of us to invest – rather than save – into an Isa, as was the Chancellor’s hope.
People of all ages save in cash for all kinds of reasons – building a deposit to put down a first home, accumulating a stockpile against financial emergencies, and to see them through retirement. They have no desire to invest beyond maybe via their pension.
Cash Isa savers shouldn’t put the flags out quite yet. What we have been told is that Isa reform has been put on hold pending more consultation. So, there is still a chance that come the Budget in the autumn, the Chancellor could well reduce the cash Isa limit.
My hope is that she will steer away from going down this wrong path. Yes, we need to encourage greater investing amongst the public, but not by discriminating against cash savers.
The sooner the Chancellor commits to a £20,000 annual cash allowance, the better. Commonsense must prevail.
SAVE MONEY, MAKE MONEY
Isa offer
Isa offer
40% off account fees for six months
Fix energy bills
Fix energy bills
Check price cap beating deals with uSwitch
Fee-free Isa investing
Fee-free Isa investing
Free share and ETF dealing, no account fee
5.44% cash Isa
5.44% cash Isa
Rate boosted for three months, then 4.59%
Get £20 off an MOT
Get £20 off an MOT
£20 This is Money Motoring Club voucher
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.
