Budget 2025: Rachel Reeves set to cut cash ISA limit to £12,000 in major challenge to savers

The move is designed to steer British households away from holding large sums in cash and towards equity investments, the Financial Times reports.

The £12,000 figure is higher than an initial £10,000 level considered during the early stages of the policy review.

It forms part of wider Treasury efforts to boost stock market participation among UK investors.

The reduction would mark a substantial change from existing arrangements that allow individuals to shelter up to £20,000 every year from tax in cash-based accounts.

Financial institutions have expressed mixed views on the proposal.

Building societies raised strong objections when the cuts were first examined during the summer.

They stressed their reliance on cash ISA deposits to support mortgage lending and warned that lower inflows could lead to higher home loan costs for borrowers.

These firms argue the Chancellor's plans do not go far enough and have called for the allowance to be halved or for cash ISA limits to be removed entirely.

Their view reflects a desire to direct more money into equity markets rather than traditional savings products.

The £12,000 figure appears intended to balance competing industry concerns.

The number represents a compromise between maintaining some room for cash saving while encouraging broader participation in investment markets.

Plans for a British ISA have also been abandoned after widespread industry criticism.

The scheme would have required investors to allocate at least twenty per cent of their holdings to UK equities.

It was intended to reduce the flow of domestic investment overseas.

However, ISA providers and the Investment Association strongly opposed the idea.

Following extended talks with financial sector representatives, the Chancellor concluded there was little backing for the proposal.

Many major platforms already offer substantial UK equity exposure through their existing products.

"The idea had a poor reception and there was a general feeling that we didn't really need to do it," said an individual involved in the discussions.

The decision to drop the scheme marks a significant departure from earlier Treasury ambitions to influence investment behaviour through regulatory requirements.

The British ISA proposal has had a turbulent history. Former Chancellor Jeremy Hunt introduced the concept during his Spring Budget in 2024.

Labour withdrew the plan in September after sustained industry pushback.

The Treasury later attempted to revive the proposal but again faced firm resistance.

Its movement from Conservative policy idea to Labour rejection and attempted revival highlights the difficulties governments face when trying to mandate investment choices.

Industry opposition ultimately proved too strong for the measure to advance.

Confirmation of its abandonment in Wednesday's Budget brings the policy's journey to an end.

Market participants argued successfully that such intervention was unnecessary and could distort existing portfolio strategies.

Additional modifications to the UK's savings landscape are expected in the Chancellor's Budget.

Sources suggest dividend taxation could rise for investments held outside protected accounts such as ISAs and pensions.

Such an increase would affect shareholders with portfolios outside tax-efficient structures and could raise extra revenue while encouraging greater use of existing protected products.

Ms Reeves may also address the stamp duty charge on newly floated shares.

A cut from the current zero point five per cent applied to firms listing on London's primary market is understood to be under review.

Any reduction would support the Government's wider plans to strengthen the capital's appeal as a place for companies to list.

Together, the measures reflect Treasury attempts to reshape investment patterns while pursuing broader economic growth goals.

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