Chancellor John Healey is reportedly planning to reverse the decision to reduce the annual Individual Savings Account allowance from £20,000 to £12,000, according to the Financial Times. The move comes ahead of the Budget on Wednesday and represents a U-turn on a policy originally announced by former chancellor Rachel Reeves at the autumn budget last year, which was scheduled to take effect in April 2027.
Reeves had introduced the Isa allowance cut as part of a drive to persuade Britons to invest more in stocks and shares rather than holding money in cash savings. Healey is reported to believe that this was the wrong approach and instead intends to focus on educating savers about the benefits of equity investing. Isas allow savers to hold interest, capital gains and investment income free from tax.
Recent data showed substantial growth across the Isa market. Total Isa subscriptions rose by £32.7 billion in the latest period, driven largely by cash Isas which grew by 37.5% or £26.1 billion. Stocks and shares Isas increased by 19.7% or £6.1 billion, while Lifetime Isas rose by 20.1% or £472 million.
Retail savings banks and building societies are expected to welcome the reported reversal, since maintaining strong inflows of savings deposits provides them with funding to lend to borrowers and supports their balance sheets. The decision would offer some relief to the banking sector, which faces expectations of higher taxes on the industry in this week's Budget announcement.
For savers, reversing the allowance cut means they can continue to shelter up to £20,000 annually in tax-free Isas rather than the reduced £12,000 limit that was planned to take effect next spring.