Chancellor Rachel Reeves is facing stern warnings over potential changes to the cash ISA system, with proposals to halve the annual tax-free allowance threatening the financial security of millions of UK households.
The Proposed Savings Shake-up
The Treasury is actively considering a reduction in the cash ISA annual allowance, potentially slashing it from £20,000 to £10,000. This move, speculated for months, could be announced in the upcoming Autumn Budget. The government's stated aim is to incentivise savers to move their money into stocks and shares ISAs, which have the potential for greater long-term returns.
However, this strategy is being heavily criticised. Dame Meg Hillier, committee chairwoman, has stated unequivocally that "This is not the right time to cut the cash ISA limit." She argues that the Treasury should instead focus on building public confidence in investment decisions.
Saver Sentiment and Financial Reality
New data from savings platform Flagstone, based on a survey of 4,000 UK adults by Opinium in Q3 2025, reveals the precarious position of many savers. The research, which included approximately 1,650 Cash ISA holders, found that nearly half lack confidence in making sound investment choices.
A significant 59 per cent fear losing access to their funds if they invest. With the average cash ISA balance standing at £6,993, and an estimated 14.4 million consumers relying solely on this type of savings account, the proposed changes could have a profound impact.
If the allowance is cut, the survey indicates savers would not necessarily shift to investment ISAs. Only 9 per cent said they would invest outside of an ISA wrapper. Instead, many plan to use the money elsewhere: 11 per cent would cover household expenses and repairs, another 11 per cent would reduce their mortgage, and a further 11 per cent would boost pension contributions.
A "Fool's Errand" and Holding Savers to Ransom
Simon Merchant, chief executive of Flagstone, has been particularly vocal in his criticism. He described the Treasury's approach as "fundamentally misguided," calling the act of pitting saving against investing a "fool's errand."
"Just because an individual won't be able to deposit as much into their ISA anymore is not going to prompt them to opt for investing instead," Mr Merchant warned. He characterised the proposals as effectively "holding savers to ransom," a sentiment echoed by other financial experts who question the logic of penalising cautious savers.
Dame Meg Hillier reinforced this, noting that the UK is "a long way" from cultivating a culture where large numbers of people feel comfortable investing in the stock market. For now, the security of cash remains a priority for millions navigating economic uncertainty.
