Building society bosses warn Rachel Reeves that cutting Cash ISAs would be 'retrograde step'

The Chancellor is reported to be considering a £4,000 limit on how much people can put into cash Isas on a tax-free basis per year, down from the current £20,000 ceiling.

The potential move is designed to encourage people to invest more money in things like stocks and shares. Stocks and shares ISAs also have a £20,000 ceiling and the potential to generate stronger returns in the long-term than cash equivalents. But they can also lose money due to following market fluctations.

Recently published Government statistics showed that in September last year, almost two-thirds of the nation’s 12.4m adult ISA accounts were cash ones.

The Chancellor is reported to have met with City fund managers last month and been urged to create a single ISA product covering stocks and shares as well as cash, with the latter limited to £4,000.

Ms Reeves has said she is keen to get the balance right but has confirmed she intends to “create more of a culture in the UK of retail investing like what you have in the United States”.

Yorkshire Building Society chief executive Susan Allen said: “I think it would be really disappointing on a number of levels of there’s any changes made to cash ISA limits.

"We did some research last year about the benefits of saving regularly and we know it helps people’s mental and financial resilience. Many people do not have the risk appetite to put their capital at risk. As a society, we need to be encouraging people to save and for many people starting with cash is where they will start.

"Our research showed us 35 per cent of savers keep money in a cash ISA and only 16 per cent in a stocks and shares ISA. People like to keep money in cash. If the limit is reduced, it will have a real impact on our members.

"Cash ISAs contribute to the funding we then use to help people get on the housing ladder. Anything that diminishes the cash building societies hold will have an impact on the housing market. I do feel strongly about this and have written to Rachel Reeves. This would be a retrograde step.”

Leeds Building Society’s newly-published financial results for 2024 said last year new ISA account openings were four times higher than in 2020, with balances reaching £15bn. It said a survey of members had found only seven per cent of its members intended to open a stocks and shares ISA this year.

Chief executive Richard Fearon said hundreds of customers had been in touch with the society to express their concerns about the future of Cash ISAs.

He said: “Building societies account for about 40 per cent of the cash ISA market and we’re opposed to the recent suggestions to cut the amount people are allowed to save within these accounts. It’s naïve at best, or deliberate misinformation at worst, for fund managers to say money saved in cash ISAs is dormant.

"We use it to fuel our mortgage lending. If you significantly reduce that funding, mortgage rates would become more expensive for borrowers. At a time when the cost of living continues to impact millions of people, the last thing that people need is to have greater pressure on their mortgage bills.”

He added: “I have written to the Chancellor to reinforce our concern because fundamentally reducing the allowance is unlikely to create greater investment in the UK. Instead it is going to lead to bigger tax bills and higher repayments for mortgage customers.

"We have heard from hundreds of our customers who are opposed to the changes and worried about having their prospects narrowed. Most of our customers are pensioners who can’t necessarily take that long-term approach.”