Personal Finance

The cash ISA threat still exists: will savers suffer as ISA reforms approach?

By Kaylie Pferten 28 Mar, 2025
The cash ISA threat still exists: will savers suffer as ISA reforms approach?
Although there are currently no cuts to cash ISAs, Kaylie Pferten says that the push to invest in stocks and shares is almost certainly coming and may be revealed in the Autumn Budget

Although it was widely speculated that the Spring Statement would reduce cash ISAs to just 4,000, the chancellor prioritized more immediate savings in order to help her reach a headroom of 9 billion by 2029/30.

When the Office for Budget Responsibility (OBR) cut its growth forecast for this year in half, from 2 percent in October's Budget to 1 percent in the Spring Statement, Reeves tightened government purse strings in what seemed to be a wave of desperate measures with numerous welfare cuts to address a flattening economy.

Future projections show a slightly better picture; OBR estimates for 2026 are higher at 1 point 9 percent, up from 1 point 8 percent in October, 2027 is 1 point 8 percent, up from 1 point 5 percent, 2028 is 1 point 7 percent, up from 1 point 5 percent in October, and 2029 is 1 point 8 percent, up from 1 point 6 percent in October.

Experts contend that Reeves has limited her options, despite her efforts to reduce welfare benefits, implement strategies to combat tax evasion, and increase penalties for individuals who fail to file their self-assessment tax returns by the deadline. Therefore, Reeves may think about additional tax increases in the months leading up to the big day of the Autumn Budget. Since she is pursuing austerity, she will do whatever it takes to get there.

But for the time being, this Spring Statement focused more on tidying up the mess and preparing the economy for expansion. The budget was not an emergency, as the shadow chancellor Mel Stride claimed, and it was not the appropriate moment to implement significant changes to the cash ISA regulations.

The ISA is modified.

ISAs were mentioned in the Spring Statement documents, but Reeves said nothing about tax increases.

With cash ISAs, cash hoarders are currently safe and can benefit from the same 20,000 tax shield as those who invest in stocks and shares, rather than the 4,000 that has been rumored.

But things are about to change. "In order to improve savers' returns, encourage retail investment, and support the growth mission, the government is exploring options for reforms to Individual Savings Accounts that strike the correct balance between cash and equities," the documents said.

To encourage people to invest, the government is also collaborating closely with the Financial Conduct Authority (FCA) to provide a system of focused assistance.

This statement doesn't say much, but it's obvious that the goal is to get people interested in investing, and I firmly think that helping people invest with confidence requires support.

The biggest issue is the lack of knowledge. The majority keep cash on hand because they lack the confidence to invest, don't know where to begin because it's considered complicated, and think it takes a lot of money and experience to get started.

There is a chance that cash hoarders will begin transferring their funds to investments if the government can bridge the gap and help people comprehend and gain confidence. And if they do, both the government and private savers benefit.

In addition to fostering confidence, the government has a duty to increase public knowledge of stocks and shares ISAs. Do you have an ISA and what kind is it?

The Investment Association reports that 25% of British citizens who have heard of stocks and shares ISAs are completely unaware of them, and 1 in 5 (17%) have "never heard" of them. About 22% of respondents claimed that they liked cash ISAs because they were simpler to comprehend.

According to Just Group research, 63% of Gen Xers have cash savings accounts with balances greater than £34,000. The majority of people have over 10,000 in investable assets sitting in bank accounts earning low interest, according to FCA research, so having thousands in cash is not generational.

More research from AJ Bell reveals that 51% of respondents would just transfer the funds to a taxable savings account if the government were to eventually cap cash ISAs at £4,000.

Reeves must launch a major campaign of investing education if it hopes to upend the ISA industry. Otherwise, Labour won't accomplish much in strengthening the financial position of individuals and businesses, which is crucial in any thriving economy.