Chancellor Rachel Reeves has been formally warned by MPs that her proposed reduction of the cash ISA allowance will fail to achieve its intended goal of boosting stock market investment.
Committee warns of unintended consequences
The Treasury Committee has delivered a stark assessment ahead of November's budget, suggesting the move could actually push up mortgage rates rather than stimulate growth in UK equities. The cross-party group of MPs conducted detailed hearings with financial experts before reaching their conclusion.
Currently, British savers can deposit up to £20,000 annually into tax-free ISAs, allocating this between cash savings and stock market investments as they see fit. Official figures reveal that in the 2023-24 tax year, a significant 66% of all ISA contributions went into cash savings products.
Experts challenge government assumptions
The committee cited evidence from Martin Lewis, founder of MoneySavingExpert, who directly challenged the government's rationale. "This concept that, if you stop people saving in cash, they are going to put money in stocks and shares is false," Lewis told MPs. "For people to invest in stocks and shares, you need a cultural change."
Committee Chair Meg Hillier expressed support for the Chancellor's ambition to help savers achieve better returns but emphasised that "we are a long way from that point." She stated clearly: "This is not the right time to cut the cash Isa limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions."
Concerns for savers and borrowers
Hillier raised serious concerns that without improved financial education, the government's strategy would backfire. She warned that "the chancellor's attempts to transform the UK's investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers."
The building society sector echoed these concerns. Matthew Carter, head of savings and mortgages at Coventry Building Society, described cutting the limit as "all stick and no carrot." He emphasised that "The ambition to encourage more investment in UK equities is a good one. But taking extra risk with the hope of greater longer-term reward isn't always the appropriate choice."
Carter highlighted that millions of savers, particularly those already in retirement or saving for house deposits, neither need nor want the uncertainty associated with stock market investments. The warning comes amid speculation that Labour's first budget could see the cash ISA allowance halved to £10,000.
