Rachel Reeves to cut annual cash Isa limit to £12,000 in Budget

Chancellor Rachel Reeves will cut the annual cash Isa limit to £12,000 in her Budget as she attempts to push savings into the UK stock market.

People close to preparations for Wednesday’s Budget said Reeves had decided to reduce the limit from the current level of £20,000 but slightly higher than the £10,000 cap that had been considered.

But the chancellor has dropped plans for a voluntary type of “Brit Isa” that would have had a minimum allocation of 20 per cent to UK equities, following a backlash from Isa providers and the UK’s Investment Association trade body.

The overhaul to Britain’s Isa regime expected in Wednesday’s Budget comes as the government attempts to funnel more cash into London-listed stocks following a dearth of corporate flotations and a defection of companies to US markets. 

The announcement on Wednesday will follow months of fierce debate in the City over plans to cut the cash Isa limit and devise a “ready made” stocks-and-shares Isa with a minimum holding of UK equities, which would have been offered on a voluntary basis. 

After weeks of consultation with the industry, Reeves concluded that there was little support for the creation of a new “Brit Isa”, not least because many established players already had strong UK weightings in their products.

One person involved in the negotiations said: “The idea had a poor reception and there was a general feeling that we didn’t really need to do it.”

Investment sites, which offer Isas among other products, told the Financial Times that they were concerned about having to hold a minimum level of UK stocks rather than allocating money according to risk and other market factors, and how this would undermine regulation.

But there are still concerns over cutting the limit. Tom Selby, director of public policy at AJ Bell, said there was “scant” evidence that cutting the cash allowance would incentivise people to invest, including in UK companies.

However, he added: “The desire to support the ailing UK stock market is understandable and it is at least positive the government hasn’t gone down the road of implementing a pointless, fundamentally flawed ‘UK Isa’.”

Reeves is expected to make other adjustments to Britain’s savings regime in the Budget and the overall net impact on the exchequer of the reforms, including the new Isa regime, is said to be broadly revenue neutral.

The Treasury declined to comment.