Chancellor Rachel Reeves is poised to deliver a significant blow to savers in this week's Budget, with major changes to cash ISA rules expected to be announced on Wednesday.
What Changes Are Expected?
Financial experts anticipate that the current £20,000 tax-free ISA allowance will be reduced to between £10,000 and £12,000. This substantial cut would dramatically limit the amount savers can shelter from tax each year, potentially exposing thousands of pounds more in savings interest to taxation.
The Treasury's rationale behind this move appears to be encouraging more people to invest in stocks and shares ISAs instead, hoping to provide a boost to the UK economy by directing more capital toward business investment.
Immediate Reaction from Savers and Experts
There has already been a noticeable surge in ISA applications in recent months as nervous savers rush to secure current rates before any changes take effect. This pre-emptive action suggests many are anticipating less favourable conditions ahead.
Chris Irwin, director of savings at Yorkshire Building Society, expressed concern about the timing: "Savers have spent years earning next to nothing on their money. Now, ISAs are helping them rebuild - offering everyday people a fair, tax-free return on their savings. But just as they're starting to find their feet again, many are worried about the creeping hand of tax on their hard-earned interest. That doesn't feel fair."
Long-term Consequences for Household Finances
Consumer finance expert Nicola Morgan from Confused.com highlighted the broader impact: "Cutting the cash ISA limit would feel like a setback for households already trying to make their money go further. Reducing the allowance would leave far less room to grow savings tax-free."
For regular ISA savers, a reduction from £20,000 to £12,000 would mean an extra £8,000 annually that may no longer be protected from tax. Even moderate savers could see a noticeable difference over time, particularly if interest rates remain higher than in recent years.
Morgan advised concerned savers: "While a potential change may feel discouraging, focusing on steps you can control - such as comparing rates, reviewing your accounts and planning ahead - can help keep your financial goals on track if the changes do go ahead."
The final decision will be revealed when Rachel Reeves delivers her Budget statement on Wednesday, with millions of UK savers awaiting the outcome that could significantly impact their financial planning.
