Cash Isa savers will not have their annual allowance slashed after plans to reduce the limit for under-65s next year were reversed in the Budget.
The move was welcomed by many savings and investments providers – although some raised concerns that plans for a new “starter Isa” could add more complexities to the Isa system.
Former chancellor Rachel Reeves had previously announced the planned cut for savers aged under 65 at the autumn budget last year, with the change set to come into effect in April 2027, as she looked to encourage investment in the stock market.
But Chancellor John Healey reversed the decision to slash the annual adult cash Isa allowance from £20,000 to £12,000 in his inaugural Budget.
He also said that to make investment more accessible, he would work with the sector to create a new starter Isa to reward first-time investors.
The previous plans to cut the cash Isa limit had drawn criticism, with finance experts raising concerns that people may simply leave money sitting in non-Isa accounts, rather than encouraging them to invest.
Tom Riley, Nationwide Building Society’s group director of retail products, said: “We welcome the decision to retain the full £20,000 cash Isa allowance.
“More than one in three under-65s saving into a cash Isa with us save over £12,000, demonstrating that it isn’t just older savers who make significant use of the allowance.
“Cash Isas help people save tax-efficiently while providing important funding for mortgage lending, including to first-time buyers.”
Isas have the advantage of money held in them being ringfenced from tax. Savers holding money in non-Isa accounts can potentially earn interest tax-free, but only up to certain limits.
Steven Levin, chief executive of wealth manager Quilter said: “Abandoning the planned cash Isa cut is welcome.
“Encouraging more people to invest is an important ambition, but restricting saving was never the best way to achieve it.
“The focus should be on making investing more attractive and accessible, not making cash saving harder.”
But referring to the starter Isa plans, he said: “Every new Isa label risks diluting the simplicity that is one of the great strengths of the Isa brand.
“The Government should use this moment to simplify the Isa landscape, not add to it.”
Brian Byrnes, director of personal finance at Moneybox, said: “While the devil will be in the detail, and we are cautiously optimistic about the direction of travel to incentivise investing, rather than punishing saving, adding yet another Isa to an already complex ecosystem does set off alarm bells.”
Kevin Brown, savings specialist at Scottish Friendly, said: “It’s surprising, and hugely disappointing, that the Chancellor has abandoned the planned reduction in the cash Isa allowance.
“We supported that change as a step towards encouraging more people to consider investing and building better financial resilience across households in the UK.”
Tom Selby, director of public policy at AJ Bell said: “Given the prime minister’s main focus is on easing cost-of-living pressures, we shouldn’t be surprised the cash Isa cut is set to be unceremoniously ditched.”
He said Mr Healey “deserves credit for seeing this iceberg coming”.
Katie Horne, banks relationship manager at Flagstone, said: “This is a sensible move by the Treasury that will help millions of savers make better savings decisions for themselves and their families’ futures.”
Susannah Streeter, chief investment strategist at Wealth Club, said: “People become investors when they feel informed and supported, not when they’re pushed.”
Chairwoman of the Treasury Committee, Dame Meg Hillier, said: “The decision to cancel the planned changes to cash Isas is a victory for common sense.
“As the Treasury Committee report set out last year, these over-complicated changes would have caused confusion for customers and led to problems for building societies who rely upon the money held in cash Isas.
“I am delighted the Chancellor has listened to concerns and cancelled the plans.
“Now the focus needs to be on improving financial education and helping people to access good advice on how to make the most of their savings.”
Figures released by HMRC in September showed around £135.7 billion was subscribed to adult Isas in the tax year 2024-25 – a £32.7 billion annual increase.
The rise was driven by a rise in cash Isa subscriptions, which grew by 37.5% or £26.1 billion.
Stocks and shares Isa subscriptions saw a 19.7% or £6.1 billion annual increase, and Lifetime Isa subscriptions had a 20.1% or £472 million rise.
Haydn Thomas, chief executive of Cornerstone Finance Group said: “The reversal of plans to cut the annual cash Isa allowance from £20,000 to £12,000 is to be welcomed, but the Chancellor also announced an increase in the rate of tax on income from savings by two percentage points from April.”
The Budget documents said: “Budget 2025 increased the rates of tax on savings and property income by two percentage points across all tax bands from April 2027.
“The Government will increase these rates by a further two percentage points from that date.
“This is a fair and proportionate approach, and 84% of income tax payers will be unaffected by these changes.”
Around half of the revenue raised from the change is expected to come from the top 10% of households, according to the Budget documents.
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