This week, building society leaders are set to ramp up their objections against the Chancellor’s plans to reduce cash ISA limits, cautioning that such a move could increase borrowing costs for homeowners and businesses. Sky News has gained access to a draft letter from the Building Societies Association (BSA), which is being shared among its members.
The letter urges Rachel Reeves to abandon her proposed cut to the annual cash ISA allowance for savers, currently set at £20,000.
The draft letter, due to be published this week, warns the Chancellor that her decision could deter savers, hinder Labour’s housebuilding aspirations, and potentially obstruct economic growth by causing an increase in funding costs, Sky News reported. “Cash ISAs are a cornerstone of personal savings for millions across the UK, helping people from all walks of life to build financial resilience and achieve their savings goals,” the draft letter stated.
It highlights the broader economic role of Cash ISAs: “The funds deposited in these accounts support lending, helping to keep mortgages and loans affordable and accessible. Cutting Cash ISA limits would make this funding more scarce which would have the knock-on effect of making loans to households and businesses more expensive and harder to come by.”
The letter warned that such a move could undermine efforts to stimulate economic growth, including the government’s commitment to delivering 1.5 million new homes. It concluded by stating that reducing the Cash ISA limit would send a discouraging message.
The Chancellor is reportedly gearing up to announce a review of cash ISA limits in her Mansion House speech next week, much to the dismay of savers who are diligently planning for their future. This move could potentially undermine a product that has proven its worth over time.
While individual heads of building societies have publicly voiced their opposition, the letter from the Building Societies Association (BSA) is likely to cause unease among Treasury officials. The Nationwide, Britain’s largest building society, along with other major players such as Coventry, Yorkshire and Skipton, are all part of this sector.
In a draft letter expected to be endorsed by numerous building society chiefs, the BSA expressed concerns that the Chancellor’s proposals “would make the whole ISA regime more complex and make it harder for people to transfer money between cash and investments”.
“Restricting Cash ISAs won’t encourage people to invest, as it won’t suddenly change their appetite to take on risk,” the letter read. “We know that barriers to investing are primarily behavioural, therefore building confidence and awareness are far more important.”
The BSA urged Ms Reeves to support “a long-term consumer awareness and information campaign to educate people about the benefits of investing, alongside maintaining strong support for saving”. They also implored her to maintain the current £20,000 limit for Cash ISAs.
“Preserving this threshold will enable households to continue building financial security while supporting… broader economic stability and growth.”
The BSA chose not to comment on the leaked letter on Monday, with one insider telling Sky News that the final version could be subject to changes.
The ISA possible changes have prompted TV personal finance expert Martin Lewis to have his say too. In a post on Facebook he said: “Reports Rachel Reeves will announce a cut to the cash ISA limit at her 15 July Mansion House speech. If true, I think it’s a mistake. I doubt it’ll substantially nudge people to invest not save; said to be the aim.
“This isn’t nudge economics, its p*** people off economics. Currently you can put £20,000 in tax-free ISAs, whether cash (savings) ISAs, shares (investments) ISAs or the smaller types. Its said the reduction’d only be for cash ISAs, so people can still invest the same tax free.
“My suspicion is that for many who use cash ISAs, it will just result in many having to pay more tax on their relatively paltry savings interest, not have an epiphany and think “oooh i’ll just fill up the remainder of my ISA allowance with investments instead”.
“I’ll be disappointed if the Chancellor chose to listen to the big investment firms in the City, and shut down many building societies and consumer groups who’ve said its not a good route.
“Instead lets start a conversation about how we encourage investments – even possible intervention when people save to explain other options. We need to educate, provide better 1-on-1 easy guidance, and start to change the way people think about risk. But lets use the carrot not a stick.”
The Treasury has thus far declined to comment on and ISA plans.
