Martin Lewis issues warning over Rachel Reeves’ plan to cut cash ISAs

The Money Saving Expert has spoken out

ISAs or 'Individual Savings Accounts' are a banking scheme that allows individual investors to hold cash, shares, and unit trusts that are free of taxation on dividends, interest, and capital gains.

As part of next month's Autumn budget, reports have emerged that Reeves' will make significant changes to rules relating to tax-free ISAs.

Per the FT, the chancellor is said to be planning to halve everyone's annual allowance from £20,000 down to just £10,000.

The 'annual allowance' is the total amount savers can place in an ISA for free per calendar year.

Aiming to encourage people to invest in shares in British business rather than cash ISAs, Reeves plans to develop an American-style investment culture in the UK economy.

Contrary to Reeves' ambitions, money expert Martin Lewis says the ISA limit will simply frustrate users rather than encouraging them to invest elsewhere.

Taking to social media, Lewis said: "A cash ISA cut would simply p*** millions of often older people off and I doubt will change the dial on investing.

“It'd just mean more tax paid on saving, and a problem for building societies raising cash for mortgages.”

The numbers back up Lewis' claims.

In the 2023-24 financial yea,r savers put close to £70 billion into cash ISAs, and it is expected this year's figures will be even higher.

The government's argument for making the change is believed to centre around the idea that encouraging investment in shares would boost British business.

Lewis has accepted that the “lack of investing is a problem” within the UK economy, but made clear that cutting ISAs was not the best solution.

He added: "If they [the Treasury] were saying they were doing it to raise revenue, at least that would be logical.

“What is needed is for them to encourage investment, better education, and better incentives.”

Per The Independent, a Treasury spokesperson has responded to Lewis' warning, saying: "Cash savings are important for people looking to put cash away for a rainy day, and we will protect that. But the chancellor has been clear that she wants to get Britain investing again – so British companies can grow and British savers who choose to can get more in return.”

What exact change to ISAs the government makes will be officially confirmed during Reeves' budget announcement on the 26th of November.