Chancellor mulls cash ISA limit cut to £12k

The Chancellor is mulling a cash ISA allowance cut to £12,000, according to a report in the FT. And sources tell Investing Insiders it’s accurate.

It’s a slightly less dramatic cut than has previously been touted, with reports saying she has considered halving it to £10k or going even lower.

The change of heart is potentially on the back of heavy lobbying from MPs, banks and building societies, who have warned it could spook savers and reduce access to vital funding for mortgage lending, which would drive up borrowing costs.

However, it’s clear the government is still set on slashing the limit to some degree in the hopes of pushing more people towards investing (via stocks and shares ISAs), despite consensus from many financial firms that this is an unlikely outcome – not least because data shows the average cash ISA holds less than £5,000, which means an allowance cut won’t impact the vast majority of people.

What if I’m worried about a cut?

If you’re worried about a cut to the cash ISA allowance, it’s important to remember most average earners with typical savings won’t be affected, and there are other options on the table.

The reason that government is considering this change is because it wants more people to invest through stocks and shares ISAs – partly because the economy needs a boost, but also because investing has historically outperformed money held in cash over the long term. That means it could benefit savers to invest rather than keep their money in a cash account.

See our top picks for a Stocks and Shares ISA here.

If your savings goals are longer term (think five years or more), you could potentially see greater returns by investing.

Even if you don’t want to invest, you may be able to continue earning tax-free interest on cash held in a stocks and shares ISA, although the rates are typically lower.