Cash ISA warning as Rachel Reeves expected to confirm huge rule change

A cash ISA warning has been issued ahead of a major change to the allowance. Chancellor Rachel Reeves is expected to slash the Cash ISA allowance amid a raft of moves aimed to fill the £40 billion hole in public finances in the upcoming Autumn Budget on November 26.

Ms Reeves is reportedly set to cut the allowance from £20,000 a year to just £10,000. The Chancellor reportedly wants savers to inject more money into Stocks and Shares ISAs in order to give the economy a much-needed boost. Sarah Coles, head of personal finance at Hargreaves Lansdown, said the move would be "one of the biggest shake-ups in the ISA market" since 1999. She added that it could have a "knock-on effect with lenders" as "banks with lower cash deposits can lend less money out for products like mortgages."

As reported by Birmingham Live, she explained: "For savers, Cash ISAs are often a first port of call when people are starting out, and they'll often gradually move over into investments as they find their feet.

"Reducing the allowance means savers have less available to transfer into Stocks and Shares ISAs when they become comfortable with investing - effectively reducing investments rather than boosting them. This is an issue which requires a carrot and not the stick approach.

"The barriers to investing are typically behavioural, so it's through encouragement and increased confidence that could increase the number of retail investors in the stock market.

"This week's announcement of radical changes to how financial firms are allowed to communicate with clients, through targeted support and changes to the boundary between financial advice and guidance, is a major breakthrough in supporting people to make the first step towards investing."

She added: "There are all sorts of people for whom the £20,000 cash ISA allowance is a vital lifeline at key moments during their life. Even someone on a relatively modest retirement income can benefit enormously from the full cash ISA allowance."

Ms Coles also said that beneficiaries may feel "overwhelmed by the changes in their life". They may prefer maintaining cash holdings temporarily until emotionally prepared for investment decisions.

Cash ISAs, the UK's most popular savings vehicle, drew 66% of all ISA contributions in 2023/24, totalling £360 billion in holdings. The Treasury insists any tweaks aim to foster a "savings culture" without revenue grabs.