Cash Isas ARE below risk, Spring Statement reveals

Individual Savings Accounts could see a radical shake-up in the near future, Spring Statement documents reveal.

The Government has revealed it is considering reforms to cash Isas, after weeks of speculation.  

The Treasury in its Spring Statement document said future reforms will aim to ‘get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission.’

Reforms could see a cut to the current £20,000 allowance for cash Isas, an allowance which is currently shared with stocks and shares versions, with a £4,000 limit speculated in recent months. 

No changes have been made for now, and the £20,000 allowance will be available to split in the 2025/26 tax year, which begins on 6 April 2025. 

It comes after an ongoing debate on cash Isa accounts was sparked as some city bosses called on the Chancellor to slash cash Isa allowances in a bid to push more savers towards investing their money.

While it was eventually reported ahead of the Spring Statement that no changes to cash Isa allowances were to be announced, the Government didn’t rule out future changes.

In the balance: The Government’s Spring Statement has teased future reform to the Isa system

Carol Knight, chief executive of The Investing and Saving Alliance, said: ‘We’re relieved that the Chancellor has decided not to announce any immediate changes to the incredibly popular cash Isa in her push for growth. 

‘Using a stick, by cutting the tax benefits of cash Isas is not the way to boost the investment culture in the UK.

‘There is a huge amount that the Chancellor could and should do to provide a boost to the consumer investment culture in the UK.’

With a reluctance among savers, many of whom rely on having ready access to their funds, to commit to investing, the Government said it is ‘working closely with the Financial Conduct Authority to deliver a system of targeted support to give people the confidence to invest.’

Isas were launched by Gordon Brown in 1999. Cash versions are the more popular than stocks and shares ones, with some £421billion held in cash Isas out of the total £726billion held in Isas in total.

Andrew Prosser, head of investments at Investengine, said: ‘Rather than simply making cash Isas less generous as a means of boosting investment take-up, focus must also be put on ways to improve financial education and literacy, ensuring more people understand how investing can benefit them.’

Michael Summersgill, chief executive of AJ Bell, said: ‘The Government must press ahead with proposals which will enable financial services firms to give customers more useful nudges about their finances through ‘Targeted Support’. 

‘This will enable millions of people to make better-informed decisions about their finances, including investing for the first time or transitioning from cash to investing.’

The Investing and Saving Alliance said it welcomes the announcement that the Government is working on a targeted support system.  

Isas saw a huge change in 2014 when then Chancellor George Osborne equalised the amount that could be split between cash Isas and stocks and shares Isas, giving people full control of where their tax-free money went.

Before this, a maximum of half could be held in cash.

Isas replaced Personal Equity Plans in 1999. Peps were launched in 1987 with the aim of wider share ownership.  

Rachael Griffin, tax and financial planning expert at Quilter, said: ‘It’s encouraging to see the Treasury taking a serious look at Isa reform. 

‘Isas are long overdue some careful thought to ensure they are both simple and produce the right behaviours.

‘Any reforms must be handled with care. Cash Isas remain popular for a reason — they offer security, accessibility and certainty, particularly for older savers or those with shorter-term goals. 

‘The key will be finding the right balance and encouraging investment without alienating those who rely on safer options.’