John Healey is expected to overturn a planned cut to the annual cash Isa allowance in his first budget, preferring to encourage investment in shares through education rather than reducing tax breaks on savings, the Guardian has learned.
The chancellor will abandon a decision by his predecessor, Rachel Reeves, to cut the allowance from £20,000 to £12,000 a year from next April, according to reports. The change was intended to channel more money into UK company stocks, but Healey is said to believe that educating people about the benefits of investing in stocks and shares is a better approach.
The reversal has been welcomed by City experts and is likely to be popular with banks and building societies, which already face higher taxes in the budget and rely on deposits to fund loans. Finance bosses had warned that the cut could deter consumers from saving and push up mortgage rates.
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.
The Treasury declined to comment on the news, which was first reported by the Financial Times.
Jo Harris, chief customer and operations officer at wealth management company Quilter, said there was “a positive in retaining a simple £20,000 allowance that savers understand”. She added: “But if the chancellor believes carrot is better than stick, there are other options. Rather than restricting the existing Isa allowance, the government could consider an additional investment-only allowance on top of the £20,000 Isa limit, alongside better financial education and support to give people the confidence to invest.”
However, not everyone in the City agreed. Michael Healy, chief executive of IG Group’s consumer division, said the chancellor had “squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy”. He noted that cash Isa subscriptions surged by £26.1bn last year, more than four times the increase in stocks and shares Isas, yet Healey had “chosen to reinforce the very savings culture that is holding Britain back”. IG modelling suggested phasing out cash Isas for new contributions could generate up to £610m in additional annual tax revenue by 2032-33, without touching existing savings.
Analysis
Why This Matters
- The decision directly affects millions of UK savers who rely on cash Isas as a tax-free savings vehicle; reversing the cut preserves the current £20,000 allowance.
- It signals Healey’s preference for incentives over restrictions to shift investment behaviour, with implications for the government’s strategy to boost UK equity markets.
- The debate reflects a wider tension between encouraging higher-risk investment and protecting household savings, particularly amid higher mortgage costs and cost of living pressures.
Background
Cash Isas are the most popular form of savings account in the UK, allowing individuals to save up to £20,000 per year tax-free. The previous chancellor, Rachel Reeves, had planned to reduce the allowance to £12,000 from April 2027, part of a push to steer more money into stocks and shares to support British businesses. Healey’s first budget is being delivered on Wednesday, and the reversal is among a series of tax and spending decisions expected.
Key Perspectives
Quilter (wealth manager): welcomed retaining the £20,000 allowance, but suggested the government could also create an additional investment-only allowance on top, alongside better financial education.
IG Group (trading platform): criticised the reversal, arguing it wasted an opportunity to shift Britain’s savings culture and generate up to £610m in extra annual tax revenue by 2032-33 through phasing out cash Isas for new contributions.
What to Watch
- The chancellor’s budget statement on Wednesday for any further Isa-related measures or alternative investment incentives.
- Whether banks and building societies adjust savings rates or mortgage pricing in response to the policy reversal.
- Longer-term trends in cash Isa and stocks and shares Isa subscriptions to gauge the effectiveness of Healey’s ‘carrot’ approach.
Checked
11 claims in this story checked against 1 source: 10 supported.
Show each claim
- SupportedHealey will reverse the planned cash Isa allowance cut in his first budget.UK news | The Guardian: “John Healey is to use his first budget to ditch plans to slash the annual cash Isa allowance”
- SupportedHealey opts for a carrot approach to boost investment in UK stocks.UK news | The Guardian: “preferring a carrot rather than a stick to encourage people to invest more in shares”
- SupportedHealey is expected to overturn the planned cut and favour education about investing over reducing tax breaks on savings.UK news | The Guardian: “Healey is expected to say ... it is better to educate people about the advantages of investing in stocks and shares ... than to reduce tax breaks on savings.”
- SupportedReeves’s planned cut would reduce the annual allowance from £20,000 to £12,000 from next April.UK news | The Guardian: “to cut the allowance from £20,000 to £12,000 a year from next April”
- SupportedThe cut was intended to get more money flowing into UK company stocks.UK news | The Guardian: “to get more money flowing into UK company stocks”
- Partly supportedThe reversal is likely to be popular with banks and building societies, which both already face higher taxes in the budget and rely on deposits to fund loans.UK news | The Guardian: “The reversal is also likely to be popular with banks, which already face higher taxes in the budget, and building societies, as they rely on deposits to fund loans to households and businesses.”
- SupportedFinance bosses warned that the cut could deter consumers from saving and push up mortgage rates.UK news | The Guardian: “Finance bosses had warned that the cut could deter consumers from saving and push up mortgage rates.”
- SupportedHarris said there was “a positive in retaining a simple £20,000 allowance that savers understand”.UK news | The Guardian: “There is a positive in retaining a simple £20,000 allowance that savers understand.”
- SupportedHealy said the chancellor had “squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy”.UK news | The Guardian: “The chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy.”
- SupportedCash Isa subscriptions surged by £26.1bn last year, more than four times the increase in stocks and shares Isas.UK news | The Guardian: “Cash Isa subscriptions surged by £26.1bn last year, more than four times the increase in stocks and shares Isas”
- SupportedIG modelling suggested phasing out cash Isas for new contributions could generate up to £610m in additional annual tax revenue by 2032-33 without touching existing savings.UK news | The Guardian: “IG modelling suggests phasing out cash Isas for new contributions could generate up to £610m in additional annual tax revenue by 2032-33, without touching existing savings.”