New Chancellor John Healey is set to scrap the controversial planned cut to the cash ISA allowance, restoring the full £20,000 annual limit and reversing a move that had been widely criticised across the financial services industry. The U-turn, reportedly expected on Wednesday following a Financial Times report, follows last year’s reforms by former Chancellor Rachel Reeves that would have restricted deposits to £12,000 for those under 65, a change industry bodies argued would hinder mortgage lending and add unnecessary complexity for savers. With the policy reversal, cash ISA subscribers can once again shelter the full annual allowance from tax, a decision welcomed by many analysts who described the original proposal as poorly timed and administratively burdensome.
Healey’s U-Turn Restores Full ISA Allowance
The planned reduction would have forced a significant shift in how households manage tax-free savings, particularly affecting those who rely on cash ISAs as a low-risk repository for emergency funds or short-term goals. Rachel Reeves’ original reform package was framed as a nudge to encourage long-term investing, but critics argued it risked penalising savers who had no appetite or capacity for market exposure. By scrapping the cut, Healey has opted to maintain the status quo on the headline allowance, at least for the immediate future. The move restores confidence among building societies and high-street banks, which had warned that a lower limit would constrain their ability to fund domestic mortgages using ISA deposits.
Industry Reaction – Welcome and Concern
Reaction from the investment community has been swift and largely positive, though not unanimous. Tom Selby, director of public policy at AJ Bell, described the U-turn as a pragmatic correction. “Healey deserves credit for seeing this iceberg coming and taking abortive action at the earliest opportunity,” he said. “Rachel Reeves’ ISA reforms were a car crash, lamented by most of the retail investment industry, who criticised the complexity they would add for little consumer benefit, and building societies, who warned they would increase mortgage costs.”
Jo Harris, chief customer officer at Quilter, offered a more nuanced take. She noted that the cut would have made little practical difference for the majority of savers, pointing out that only 22.7 per cent of ISA subscribers used their full allowance in 2022/23, while 42 per cent put away less than £2,500.
