Chancellor Rachel Reeves is set to launch a comprehensive review of the ISA market within weeks, marking what could be the biggest shake-up since ISAs were introduced in 1999.
The Treasury is preparing to begin a consultation seeking views from across the City on potential reforms to the popular savings vehicle.
This initiative comes as the Government aims to encourage savers to direct more money into stocks and shares ISAs rather than holding large sums in cash accounts.
The consultation could be launched at the Chancellor's Mansion House speech in July, according to financial experts.
Andrew Hagger, founder of personal finance website Money Comms, says: "It looks like there could be a big shake-up in the Isa market, far more than just tinkering around the edges."
According to figures from the Financial Conduct Authority, three in five people who have more than £10,000 in 'investible assets' hold at least 75 per cent of these assets in cash, rather than investments. This trend is what the Government is seeking to address.
In the Spring Statement, the Government stated it wanted to 'get the balance right between cash and equities to earn better returns for savers' and 'boost the culture of retail investment' in the UK.
Analysts are warning over the potential impact of the rumoured policy being drawn up by Rachel Reeves GETTY Speculation has been mounting about what the new ISA regime could look like – with rumours it could be the biggest shake-up since the savings products were launched in 1999.
Among the reforms being considered is a potential reduction to the current £20,000 allowance for cash ISAs, which is currently shared with stocks and shares versions.
Some reports have speculated this could be cut to as low as £4,000 in recent months, though other suggestions point to an £8,000 limit while maintaining the overall £20,000 allowance.
The ISA consultation is expected to explore various options for reform, with the Treasury keen to shift the focus away from cash holdings and towards equity investments that could potentially deliver better long-term returns for savers.
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Financial experts have suggested various approaches to ISA reform
GETTYFinancial experts have suggested various approaches to ISA reform. Hagger believes the ISA market is "currently too complicated" and needs simplification.
He said: "There needs to be simplification and potentially new products, perhaps where you could invest cash and equities in a single ISA product."
However, Hagger warned that "trying to force consumers down the riskier and complex investment route isn't the way to go."
Rachael Griffin from Quilter suggested that "combining cash and stocks and shares ISAs into a single, flexible account" could be beneficial, making it easier for consumers to manage their savings and investments in one place.
Michael Summersgill, chief executive of AJ Bell, emphasised that "reducing complexity and simplifying consumer choice by merging cash ISAs and stocks and shares ISAs into a single account" would create a more fluid landscape.
"The current ISA framework labels people either as a cash saver or an investor. In reality, however, most people need a bit of both," he noted.
Sarah Coles from Hargreaves Lansdown suggested renaming the stocks and shares ISA to "Investment ISA" for simplicity, while Brian Byrnes of Moneybox cautioned against reducing cash ISA allowances.
Byrnes said: "Cash ISAs remain the UK's most popular savings vehicle and are a vital tool for financial resilience, particularly among lower earners. Reform should aim to build confidence in investing, not restrict access to saving.
ISAs are useful tools for those looking save and avoid paying taxGETTY"Ultimately, Isa reform must be part of a long-term strategy to grow a stronger savings and investment culture in the UK. That starts with clarity of purpose — and a commitment to keeping consumer needs at the heart of any changes."
The anticipated Treasury consultation offers an opportunity to clarify the Government's objectives around encouraging long-term investing, boosting UK asset ownership, and simplifying the ISA system.
Financial advisers stress that any changes must keep consumer needs at the heart of reforms. They suggest that ISA reform should be part of a broader, long-term strategy to develop a stronger savings and investment culture in the UK.
As Rachel Reeves prepares to launch the review, the financial industry appears united in calling for simplification rather than additional complexity in the ISA framework.
