Building society warns Rachel Reeves against 'contradictory' Cash ISA cuts

Rachel Reeves has been warned that changes to the cash ISA allowance would be "the wrong lever to pull" amid speculation it could be cut. A Cash ISA is a UK savings account where the interest you earn is tax-free, and are a popular way to save.

However, reports have suggested the Chancellor may look reduce the annual Cash ISA allowance from £20,000 to £10,000 in the Labour government's Autumn Budget next month, as part of efforts to encourage Britons to invest in stocks and shares to give the economy a boost.

But Nottingham Building Society says research it commissioned shows that millions of people are already finding it difficult to save regularly and further changes may only serve to discourage saving completely.

The study of more than 2,000 adults conducted by Censuswide found that 44% of UK savers do not save money on a regular basis. For those aged 60 and above, the figure rises 48%.

The research found women are less likely than men to save consistently, with 47% of women admitting to not saving regularly compared to 40% of men.

There are also regional hotspots, with the issue being most pronounced in the North East of England (where 52% of adults say they don't save regularly), Wales (50%) and the South East (47%).

Additionally 28% UK adults admit they save only "when they can", for over-60s it's 34%, according to the firm.

It comes as households across the country face an array of financial pressures not helped by the freeze on income tax thresholds, which is seeing Britons pulled into higher tax bands.

Meanwhile, stagnant wage growth and increasing living costs mean people are having to priorise short term costs over saving for the future, the building society says.

57% of respondents said they were not saving "more than last year", with 70% of over-60s saying the same. 45% of people say they keep their savings in a current account, while 45% favoured an easy-access account.

Notably, the research also found nearly two thirds (37%) say they feel most comfortable saving in a Cash ISA, (47% for over 60s).

The building society says HMRC data reflects this trend, showing Cash ISA subscriptions surging by almost 70% in 2023-24, reaching close to £70bn, with Cash ISAs accounting for for two thirds (66%) of all new ISA accounts.

But their own newly-released research found just 18% of respondents savings in a Stocks and Shares ISA.

Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: "We understand the government's ambition to promote a stronger investing culture in the UK, but cuts to the Cash ISA allowance is the wrong lever to pull. Cash ISAs remain one of the few straightforward, low-risk tools that help people build financial security, particularly during periods of economic uncertainty.

"Our data shows that many people already struggle to save consistently. If the Cash ISA allowance is cut, it risks pushing savers into products they don't fully understand, or worse, out of saving altogether. Research we did earlier this year found that only 38% of Cash ISA holders say they'd consider switching to a Stocks & Shares ISA if the allowance were halved, while a third say they'd simply save less*.

"For many, the Cash ISA is a cornerstone of their financial planning. Three fifths of our fixed-rate ISA customers used the full £20,000 allowance last year, and among those saving in-branch, that figure rose to 65%.

"We believe that savers deserve choice, not restriction. The ISA system should support a range of financial goals, from first homes to retirement, through optionality, simplicity and flexibility. Cutting allowances sends the wrong signal at a time when households need reassurance and stability, not uncertainty. We urge the Chancellor not to cut the tax-free allowance in November.

"Thinking beyond savers, it's also important to remember that ISAs held with mutuals like Nottingham Building Society directly support lending to aspiring homeowners. Cutting the Cash ISA limit risks limiting that lending power, in direct contradiction to Labour's own ambition to double the size of the mutual sector."

The Treasury has been approached for comment.