Rachel Reeves’s overhaul of cash ISA rules has stalled after months of discussions failed to produce key decisions, leaving millions of savers facing continued uncertainty ahead of planned reforms.
Treasury officials have spent three months in talks with the financial services industry but have yet to finalise how the new framework will operate in practice.
Concerns have been raised by those involved in the process, with one source describing a lack of progress despite extensive engagement.
The source said: "[The Treasury] has done three months of meetings, round tables, and emails [it] still can't decide what to do. It doesn't sound like it's going well."
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Uncertainty now surrounds major rule changes scheduled to take effect in April 2027, with key aspects of the policy still unresolved.
Ms Reeves first announced plans to reduce the cash ISA allowance in last year’s Budget, cutting the annual limit from £20,000 to £12,000 for savers under 65.
Under the proposals, stocks and shares ISAs would retain the full £20,000 allowance in an effort to encourage greater investment in UK markets.
HM Revenue and Customs (HMRC) later confirmed it would introduce measures to prevent savers from bypassing the new limits by holding cash within investment accounts.
Rachel Reeves cash ISA changes delayed
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Rules are also expected to prevent transfers from stocks and shares ISAs and Innovative Finance ISAs into cash ISAs under the revised system.
Forecasts published by the Treasury in March suggested the reduced allowance could raise an additional £95million in tax revenue over five years.
Despite this, several core elements of the policy remain unclear as draft legislation is expected later this year.
Officials have not yet set out how interest earned on cash held within stocks and shares ISAs will be treated for tax purposes.
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Uncertainty grows for millions of savers
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Questions also remain over how so-called cash-like investments will be defined and whether they will face restrictions or additional charges.
A previous system applied a flat 20 per cent tax to cash held in stocks and shares ISAs, and some firms have suggested reintroducing a similar approach.
Industry figures have criticised the proposals, arguing that savers risk being penalised as part of wider efforts to reshape investment behaviour.
A source said: "Savers should not be punished with a punitive tax penalty just to help achieve this misguided cash ISA cut."
The lack of clarity comes as the tax on savings income is due to rise by two per cent from April 2027.
Tom Selby, director of public policy at AJ Bell, said: "The fact this hasn't happened yet is staggering and leaves open the very real risk of unintended consequences."
He added: "Any move to tax cash or cash-like investments in stocks and shares ISAs, both of which play a central role in retail investing, has the potential to undermine the very product policymakers are attempting to encourage people to use."
A Treasury source said officials had been working with HMRC and industry representatives on anti-circumvention rules, while confirming that the framework has yet to be finalised.
Alongside the reforms, a Government-backed campaign encouraging people to invest rather than save is expected to launch later this week.
The Treasury declined to comment further on the ongoing discussions.