Chancellor Healey Set to Scrap £8,000 Cash Isa Cut in First Budget

Chancellor John Healey will use his first budget to scrap plans to cut the annual cash Isa allowance from £20,000 to £12,000, the Guardian understands. The move overturns a decision by his predecessor, Rachel Reeves, and signals a shift in strategy: carrot rather than stick.

The cut, scheduled to take effect from next April, was designed to push more money into UK company stocks. Instead, Healey is expected to tell the House of Commons on Wednesday that it's better to educate people about the advantages of investing in stocks and shares than to reduce tax breaks on savings. The Treasury declined to comment, and the Financial Times first reported the news.

City experts welcomed the reversal. Banks — already facing higher taxes in this budget — and building societies will be relieved too. Both rely on deposits to fund loans to households and businesses.

Finance bosses had issued a blunt warning: the cut could deter consumers from saving and push up mortgage rates. That threat now appears dead, at least for this parliament's first budget cycle.

Cash Isas are the UK's most popular savings product. All Isas are exempt from tax on interest, as well as income and capital gains taxes. For a household maxing out the allowance, keeping the full £20,000 means £8,000 more per year in tax-protected savings capacity than under the Reeves plan.

Jo Harris, chief customer and operations officer at wealth manager Quilter, said: "There is a positive in retaining a simple £20,000 allowance that savers understand."

But she argued the government shouldn't stop there: "Rather than restricting the existing Isa allowance, the government could consider an additional investment-only allowance on top of the £20,000 Isa limit, alongside better financial education and support to give people the confidence to invest."

What does this change for savers and banks?

For savers, nothing changes — and that's the news. The £20,000 allowance survives, and with it the flexibility to park cash in the UK's most popular tax-free wrapper. For banks and building societies, a key funding source stays intact at a moment when budget tax rises are already squeezing their margins.

Not everyone in the City is celebrating. Michael Healy, chief executive of IG Group's consumer division, said: "The chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy."

Healy pointed to the scale of the imbalance between cash and equities. "Cash Isa subscriptions surged by £26.1bn last year, more than four times the increase in stocks and shares Isas, yet the chancellor has chosen to reinforce the very savings culture that is holding Britain back."

He also put a number on the abandoned policy. "IG modelling suggests phasing out cash Isas for new contributions could generate up to £610m in additional annual tax revenue by 2032-33, without touching existing savings."

The bigger picture

The reversal tells you where Healey's Treasury stands on retail investment policy: persuasion over compulsion, at least for now. Expect the budget speech to lean heavily on financial education as the mechanism for shifting British savings habits toward equities.

For practitioners, the practical question is whether Wednesday's statement opens the door to Quilter-style add-ons — an investment-only allowance layered on top of the existing £20,000 limit. If Healey signals that direction in the Commons, the retail investment market gets a fresh growth lever without the political fight a cash Isa cut would have triggered.