The Chancellor of the Exchequer will send a financial dagger through the hearts of millions of savers when she confirms a reduction in the amount we can safely tuck away in a tax-free cash Isa.
We will discover the gory details on July 15 when Ms Reeves delivers her Mansion House speech in London. But for young and old, the prudent and the risk averse, the announcement will feel like a betrayal – an undermining of the savings culture that underpins the finances of millions of households up and down the country.
For more than a quarter of a century, cash Isas have been an integral part of our financial furniture, providing savers a mini ‘tax haven’ where savings interest rolls up tax-free and all deposits are capital secure.
They have allowed the young to save assiduously for a home deposit – and those longer in the tooth to build tax-free savings pots which can be used to supplement their retirement finances.
Yet these trusty vehicles are now going to be butchered as part of the Chancellor’s plan to encourage more investing rather than saving.
From the start of the new tax year in April 2026, the amount we can save each year into a cash Isa could be cut from £20,000 to £5,000, maybe £4,000. For those who want to use an Isa to invest (buy stocks and shares), they will continue to enjoy a £20,000 annual allowance.
The Chancellor leaves 11 Downing Street on the day news emerged that she could be coming after tax-free cash Isas to boost Treasury coffers
While the Chancellor says the changes will boost an ailing stock market by encouraging investing over saving, I don’t believe the public will act the way she wants them to do. At best, the impact on UK shares will be marginal.
Millions of people, especially the wannabe homebuyers and the elderly, will simply not play ball. For them, investment risk is a no-go.
For the Chancellor, that would not necessarily be a total disaster. After all, preventing cash savers from using the full annual Isa allowance will result in more of their savings being exposed to tax.
This tax year, official figures indicate that tax receipts from savings will reap the Treasury £6 billion of revenue, three times the amount three years ago.
This sum, I fear, will look like chicken feed if cash Isas are given a haircut – while the tax-free personal savings allowance for taxpayers (£1,000 for basic rate taxpayers, £500 for higher rate taxpayers and zero for additional rate taxpayers) remains frozen at its 2016 level.
Savers are being shafted, left, right and centre.
