Chancellor Healey to restore cash ISA limit to £20,000

Chancellor John Healey will restore the annual cash ISA allowance to £20,000 in his first budget, reversing a decision made by his predecessor, Rachel Reeves. The government had planned to reduce the limit to £12,000 starting in April to encourage investment in UK company stocks. Healey is expected to announce the change during his tax and spending statement to the House of Commons on Wednesday.

The new approach favors education over tax cuts to drive stock market participation. Healey plans to argue that explaining the benefits of investing in shares to generate higher returns is more effective than reducing tax breaks on savings. This strategy marks a shift from the previous administration's attempt to force capital into equities by shrinking the cash savings option.

Cash ISAs are the most popular savings product in the UK. All ISAs are exempt from tax on interest, as well as income and capital gains taxes. Banks and building societies have welcomed the reversal, as they rely on deposits to fund loans to households and businesses. These institutions already face higher taxes in the current budget.

Jo Harris, chief customer and operations officer at wealth management company Quilter, supported the decision to retain the familiar £20,000 limit. Harris noted that a simple allowance is easier for savers to understand. She suggested that the government could also consider an additional investment-only allowance on top of the existing limit, alongside better financial education, to give people more confidence to invest.

Michael Healy, chief executive of IG Group’s consumer division, offered a different perspective. Healy stated that the Chancellor missed a chance to help households build long-term wealth and direct money into businesses. He pointed out that cash ISA subscriptions increased by £26.1 billion last year, which was more than four times the growth in stocks and shares ISAs. Healy argued that the decision reinforces a savings culture that he believes is holding the economy back.

IG modeling suggests that phasing out cash ISAs for new contributions could generate up to £610 million in additional annual tax revenue by 2032 and 2033. This potential revenue would be raised without touching existing savings. The Treasury declined to comment on the news, which was first reported by the Financial Times.