MPs have warned Rachel Reeves that cutting the cash ISA limit will not stimulate the stock market. The Treasury committee highlighted concerns that such a move in the upcoming November budget might instead lead to higher mortgage rates.
Currently, savers can deposit up to £20,000 annually into a tax-free ISA, choosing to allocate funds between cash savings and stock market investments as they see fit. In the 2023-24 tax year, 66% of contributions were directed into cash ISAs.
As the Labour Party prepares its budget, speculation has emerged about halving the cash ISA limit to £10,000 in an effort to encourage more investment in stocks and shares.
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However, a report from the Treasury committee, drawing on expert testimony, quoted Martin Lewis, founder of MoneySavingExpert, who refuted the idea that reducing cash ISA allowances would automatically push savers into equities. He emphasized that investing in stocks requires a cultural shift, not simply a limit change.
Committee chair Meg Hillier expressed support for the chancellor’s goal to help savers achieve better returns through informed financial choices, but stressed that the country is far from ready for such a change. She urged the Treasury to prioritize financial education, warning that a premature cut in cash ISA limits could harm both savers and mortgage borrowers instead of fostering a stronger investment culture.
Matthew Carter from Coventry Building Society echoed this sentiment, highlighting that many savers, particularly retirees and first-time buyers, prefer the security of cash savings over the unpredictability of the stock market. He described the proposed ISA limit cut as “all stick and no carrot,” acknowledging the importance of promoting UK equity investment but cautioning against forcing unnecessary risk on vulnerable savers.