Prime Minister Andy Burnham is facing calls to reconsider the upcoming reduction to the cash ISA allowance, with an investment expert warning that the changes could discourage people from saving or investing altogether. The reforms, announced at the Autumn Budget 2025, are set to take effect from April 2027, but Andrew Prosser, head of Investments at InvestEngine, suggests an early review could simplify the system and boost uptake of stocks and shares ISAs.
Key Changes to ISA Allowance
Currently, savers can deposit up to £20,000 annually into ISAs, with all growth tax-free. They can split this allowance freely between cash ISAs and stocks and shares ISAs. However, from April 2027, savers under 65 will only be able to use up to £12,000 of the allowance flexibly, with the remaining £8,000 restricted to stocks and shares ISAs only.
The Government's stated aim is to encourage more investment, but Mr Prosser fears the complexity could backfire. He said: "If Andy Burnham wants to put his own stamp on ISA policy, he should just make it simpler, starting with an early review of the package of reforms due to take effect from April 2027."
Complexity Risks Deterring Savers
Mr Prosser highlighted that many people are reluctant to invest in stocks and shares ISAs because they find them difficult to understand. He noted: "People are often reluctant to invest because they just don't understand it, so the simpler ISAs are to understand and the easier they are to access, the better."
He also pointed to the added complication of different cash ISA limits for under-65s and over-65s, as well as a 22 per cent charge on interest earned on cash held within a stocks and shares ISA. This charge, stipulated by the Government, applies to any interest on cash holdings within such accounts, adding another layer of confusion.
Potential Impact and Education Gap
Despite the intention to drive investment, Mr Prosser warned the changes could "push people away from saving or investing altogether." He emphasised that investing typically yields stronger long-term growth than cash interest rates, though he acknowledged that the value of investments can go down as well as up.
Mr Prosser also drew attention to a widespread misconception: "Stocks and shares ISAs have been around for decades, but many people still think ISAs are just for cash." He called for more education about the benefits, including the ability to invest £20,000 a year with returns free from Capital Gains Tax and Income Tax, and the option to generate tax-free income from an investment ISA. "If more people knew this, I think they would be a lot more popular," he added.
