Top brokers and building societies have locked horns over whether the Chancellor should follow through with rumoured plans to slash the cash ISA limit.
London-based trading platform IG is pushing for Chancellor Rachel Reeves to act on rumours to slash the cash ISA allowance to £10,000, after analysis found it could provide a £7.2bn boost for cash ISA holders who choose to invest their excess funds.
The Treasury is working to encourage retail investment in order to boost economic growth, including plans to roll out a “targeted support” scheme before the 2026 ISA season, and rumours of a stamp duty cut on shares to 0.5 per cent.
But plans to overhaul the ISA regime have dominated speculation, with the cash ISA ceiling, which stands at £20,000, having long been criticised by industry figures, who believe its incentivises Brits to hoard cash rather than shift it into the stock market.
The £7bn boost
According to IG, one third of cash ISA holders – approximately 2.8m people – contribute more than £10,000 each year, but nearly 30 per cent said they would invest into stocks and shares if the threshold was cut.
This would lead to potential returns of over £7bn over the span of five years, equating to over £9,100 per saver.
Michael Healy, managing director of IG, said: “The Chancellor is absolutely right to tackle the UK’s overreliance on savings, starting with a product that does nothing for long-term wealth creation.
“Reducing the annual allowance to £10k sends the right message that the government is serious about getting more people investing and we would encourage the government to go further by abolishing the cash ISA altogether.”
Building societies bite back
The Treasury initially looked to slash the cash ISA limit during the summer, but the move was scrapped after fierce backlash from building societies.
The providers argued that they used cash ISAs to fund mortgages and reducing these inflows would potentially make home loans more expensive.
However, IG refuted these claims, viewing them as “largely overstated”.
The Building Society Association reports that building societies hold around 40 per cent of cash ISA balances, but analysis by IG found that around £1.6bn of cash ISA contributions usually directed to building societies could be redirected to investing.
The amount accounts for just 0.4 per cent of building societies total retail deposits, indicating a minimal impact on the sector.
Healy said: “Suggestions that it could threaten the mortgage market are simply scaremongering. The reality is that this reform is sensible, proportionate and long overdue.
“We urge the Chancellor to stick to her guns.”
Yet, building societies have hit back, claiming IG “missed the point”, and there is a need for cash among increased investing.
Sue Hayes, chief executive officer of the Nottingham Building Society, said on Linkedin: “The truth is, there’s a place for risk, and a place for reward.
“Britain needs both. But we must ensure people can save for the future in the right way, at the right time and with the right purpose.”