The nation is in countdown mode. In 327 days’ time – April 6 next year – we will wake up to a new Individual Savings Account regime that will look little like it does today.
The overhaul will be seismic, more dramatic than any other experienced in the 26-year life of the Isa – a tax wrapper designed to encourage saving and investing.
Next April, it will very much be out with cash and in with investing, all part of the Government’s grand mission to get the country investing again, preferably in what’s left of UK plc.
Getting people to use Isas to invest will be prioritised. But for those who prefer to save, the 2026 remodelled version will be less appealing.
Although the current £20,000 annual Isa allowance will remain intact for investors, savers will no longer be able to use more than a slither of it to put money into a cash Isa.
No decision on the cash limit has yet to be determined, but £4,000 is a figure widely bandied around.
Investment drive: Chancellor Rachel Reeves is desperate to get the UK economy growing and sees Isa reform part of achieving that goal
Of course, nothing is certain in the world of politics, but from all my conversations this week with experts, I am convinced this is the way the Isa changes are going to play out.
For many of the eight million people a year who put money into a cash Isa to protect their hard-earned savings from the taxman, any cap will be seen as spiteful and an attack on prudence. For some, it will prove calamitous.
It will curb the ability of the young to accumulate a deposit sufficient for them to buy a first home. For those in later life, it will make it more difficult to protect essential risk-free savings from being taxed.
It’s why in February this year Money Mail and This is Money launched our Hands Off Our Cash Isas! campaign although, at the time, it was feared that Chancellor Rachel Reeves would go further and remove the tax wrapper for all existing cash Isa savers. A move that she has since ruled out.
The journey towards the new Isa regime will be decided by four key events.
In chronological order, publication of the Government’s Financial Services Growth and Competitiveness Strategy (FSG&CS), a Treasury consultation paper, the Chancellor’s Autumn Budget and the new tax year starting in April 2026.
Bar hiccups, the strategy report will be published on July 15, detailing how the Government intends to support the financial services industry in key areas such as fintech, ‘sustainable’ finance and the country’s capital markets (such as the stock market).
Countdown: In 327 days’ time the Chancellor is set to announce major shake-up of Britain’s Individual Savings Account regime
In an earlier call for evidence on this report, a big theme around boosting capital markets was through increasing retail participation (that is, through the likes of you and me buying more shares).
Without mentioning the Isa acronym, it referred to the quarter of adults who don’t invest when they could do, and the £430 billion of non-emergency savings held in cash by households.
It added: ‘There is an opportunity to encourage these consumers to invest to a longer time horizon.’
The FSG&CS report is expected to spell out how changes to the Isa regime could play a part in fulfilling this mission.
It will then more than likely be followed by a Treasury consultation document, detailing the Isa changes necessary to get more people investing. This will include a reduction in the annual cash allowance.
Everyone will be able to have their say on the consultation’s proposals: not just those who work in the City, but consumers and cash Isa providers.
Some views may persuade the Treasury to change tack a tad, but we won’t know until October 30 when Rachel from Accounts will detail the definitive Isa changes that will come in from April 6, the start of the new tax year.
Change before that date will not happen because of the administrative knots it would tie Isa providers in.
There is also a possibility that the Chancellor could delay any changes until April 2027 as a sop to angry cash Isa providers and savers, but I wouldn’t bet on it. She is desperate to get the UK economy growing and sees Isa reform part of achieving that goal.
The battle isn’t lost, keep fighting for cash Isas
Yet the battle to keep the £20,000 cash allowance is not over.
Apart from Money Mail and This is Money, the association representing the country’s building societies has campaigned ferociously for cash saving to remain at the heart of Isas.
In February, Robin Fieth, chief executive of the Building Societies Association, warned the Chancellor that any move to reduce the attraction of cash Isas would mean less money flowing into banks and building societies, forcing them to restrict lending, driving up mortgage prices and potentially causing a housing market downturn.
In a letter to the Chancellor, he warned: ‘Cash Isas help consumers to achieve their savings goals. They play an integral role in the UK savings market and have done for many decades. They represent a policy success upon which we should seek to build, rather than to curb.’
Yesterday, Mr Fieth was not as fiery as he had been in February, but still insisted that consumers should be given freedom to choose how they use their annual Isa allowance: all in cash, all in stocks and shares or a bit of both.
He told Money Mail: ‘Simply reducing the cash Isa limit is unlikely to result in more people investing, but it will hurt people who are responsibly saving for short-term goals, when investing is not appropriate.’
He added: ‘The £20,000 annual limit should be left alone. But if the Government decides to make any changes [reductions] to the Isa allowance, it should make them to stocks and shares Isas as well as cash Isas, otherwise the system will become too complicated.’
As for getting more people to invest, he said a far more ‘elegant solution’ than slashing the cash Isa allowance in the vague hope of diverting more money into investment Isas would be for fund managers to launch a campaign raising awareness about the long-term benefits of investing.
It’s a recommendation to come out of a report published last month by Barclays into creating an ‘engaged, investing public’, albeit the bank said any campaign should be funded by the Government, not investment companies.
So, for those who use Isas to save rather than invest, the message is clear. Use as much of this year’s £20,000 cash Isa allowance as you possibly can – because it won’t be as generous next year.
If you are holding cash Isas from previous tax years, ensure they are earning as much interest as possible. Transferring to a more competitive provider is straightforward and does not impact on this year’s Isa allowance.
If you are angry about an impending cut to the cash Isa allowance, let your MP know. Once any Treasury consultation paper is published, I will let you know how you can input into it.
Yesterday, Money Mail spoke at length to the Treasury about changes to the Isa regime. But on the record, it would only repeat the Chancellor’s wish made earlier this month ‘to create more of a culture in the UK of retail investing, like what you have in the US’.
Dear readers, countdown has begun. A haircut is coming the way of the cash Isa. Grab one while you can.
jeff.prestridge@dailymail.co.uk
