Rachel Reeves sparks fury as major Cash ISA change to hammer Brits

Rachel Reeves is under fierce fire from MPs, consumer champions and industry bodies after reviving plans to halve the annual £20,000 tax-free cash ISA allowance - the limit on new contributions each tax year - with critics warning it would penalise savers and inflate mortgage rates amid Britain's cost-of-living squeeze. Existing ISA balances, which can grow tax-free beyond £20,000, would remain protected.

The House of Commons Treasury Select Committee unleashed the backlash today, publishing a report that slams the proposal as misguided and counterproductive. Chaired by Dame Meg Hillier, the cross-party group argues the cut - potentially to £10,000 - would do little to shift cash-hoarders into stocks and shares, but could starve building societies of vital funds for home loans.

Dame Hillier said: "This is not the right time to cut the Cash ISA limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions.

"Without this, I fear that the Chancellor's attempts to transform the UK's investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers."

The committee's intervention follows earlier Treasury hints at rebalancing savings. Economic Secretary Emma Reynolds revealed in evidence to the panel this year: "The Government was 'looking at striking a better balance between cash and equities' for savers... [aware of] 'many people putting cash aside who could and might consider investing in stocks and shares'."

Cash ISAs, the UK's most popular savings vehicle, drew 66% of all ISA contributions in 2023/24, totalling £360 billion in holdings.

Opposition leaders have seized on the report. Shadow Chancellor Sir Mel Stride branded the idea "a tax raid by another name" that would "hit millions of careful savers across Britain".

Sir Mel added: "It's no surprise the Treasury Select Committee is warning against cutting the cash ISA allowance."

Consumer advocate Martin Lewis, founder of MoneySavingExpert, echoed the uproar on social media, with Martin Lewis calling a cut "ISN'T the solution" to low investment rates.

Posting on X on October 15, he said: "Lack of investing is a problem, but a cash ISA cut would simply p*** millions of, often older, people off and I doubt will change the dial on investing, it'd just mean more tax paid on saving, and a problem for building societies raising cash for mortgages." He instead advocated incentives over penalties, adding: "Carrot will work better than a stick!"

The building society sector, which relies on cash ISAs for over a third of its funding, fears dire knock-ons.

Andrew Gall, head of savings at the Building Societies Association (BSA), said: "We are very concerned that the Chancellor is still considering cuts to the Cash ISA limits.

"We support efforts to help more people to invest... but cutting the Cash ISA limit simply won't achieve this. Instead it would undermine one of Britain's most successful savings products."

BSA analysis projects that a more severe cut to £5,000 could lead to 17,000 fewer mortgage loans and reduce GDP by around £7 billion over five years.

Sarah Coles, head of personal finance at Hargreaves Lansdown, warned: "Cutting the cash ISA allowance isn't the answer to boosting investment."

She stressed that such a move "may not prompt savers to boost their investments", potentially leaving less cash overall for equities.

With base rates at 4% and inflation lingering above target, cash ISAs offer vital tax relief for risk-averse households facing average house prices of £273,000. The Treasury insists any tweaks aim to foster a "savings culture" without revenue grabs.

As the November 26 Budget looms, the row highlights Labour's fiscal tightrope: spurring growth without alienating the prudent majority.