Leading brokers and building societies have clashed over whether the Chancellor should proceed with speculated plans to reduce the cash ISA limit.
The London-based trading platform IG is urging Chancellor Rachel Reeves to act on speculation about cutting the cash ISA allowance to £10,000, following analysis suggesting it could deliver a £7.2bn boost for cash ISA holders who opt to invest their surplus funds.
The Treasury is working to promote retail investment to stimulate economic growth, including proposals to introduce a "targeted support" scheme ahead of the 2026 ISA season, alongside rumours of reducing stamp duty on shares to 0.5 per cent.
However, speculation has centred on plans to reform the ISA system, with the cash ISA ceiling, currently set at £20,000, having faced sustained criticism from industry figures who argue it encourages Britons to stockpile cash rather than transfer it into equities.
The £7bn windfall, as reported by .
IG's research indicates that one third of cash ISA holders – roughly 2.8m individuals – deposit more than £10,000 annually, whilst nearly 30 per cent stated they would invest in stocks and shares if the threshold were reduced.
This could generate potential returns exceeding £7bn over a five-year period, equivalent to over £9,100 per saver.
Michael Healy, managing director of IG, said: "The Chancellor is absolutely right to tackle the Ƶ's overreliance on savings, starting with a product that does nothing for long-term wealth creation.
"Reducing the annual allowance to £10k sends the right message that the government is serious about getting more people investing and we would encourage the government to go further by abolishing the cash ISA altogether."
Building societies bite back.
The Treasury initially considered slashing the cash ISA limit during the summer, but abandoned the proposal following fierce opposition from building societies.
The providers contended that they relied on cash ISAs to fund mortgages, and reducing these inflows could potentially drive up home loan costs.
However, IG dismissed these claims, describing them as "largely overstated".
The Building Society Association reports that building societies hold approximately 40 per cent of cash ISA balances, but IG's analysis revealed that roughly £1.6bn of cash ISA contributions typically directed to building societies could be redirected towards investing.
This figure represents merely 0.4 per cent of building societies' total retail deposits, suggesting a negligible impact on the sector.
Healy said: "Suggestions that it could threaten the mortgage market are simply scaremongering. The reality is that this reform is sensible, proportionate and long overdue. ".
"We urge the Chancellor to stick to her guns."
Nevertheless, building societies have responded, arguing that IG "missed the point", and emphasising the continued need for cash alongside increased investing. Sue Hayes, Chief Executive Officer of the Nottingham Building Society, stated on Linkedin: "The truth is, there's a place for risk, and a place for reward.
"Britain needs both. But we must ensure people can save for the future in the right way, at the right time and with the right purpose."
The Building Society Association (BSA) said that building societies hold approximately 40 per cent of cash ISA balances, but IG’s analysis revealed that roughly £1.6bn of cash ISA contributions typically directed to building societies could be redirected towards investing. Mr Healy said: “Suggestions that it could threaten the mortgage market are simply scaremongering. The reality is that this reform is sensible, proportionate and long overdue. We urge the Chancellor to stick to her guns.”
The Swansea Building Society is backing the BSA, which represents all 42 Ƶ building societies, in warning that any reduction in the annual cash ISA subscription limit would be counterproductive — discouraging saving, adding complexity, and potentially harming both the housing market and wider economy.
According to the BSA, building societies and mutual-owned banks hold 47% of all cash ISA balances in the Ƶ, making them central to the nation’s savings culture.
Chief executive of the Swansea Building Society, Alun Williams, said: “Cash ISAs are one of the simplest and most trusted savings products available to the public. They help millions of people to save securely, tax-free, and independently — supporting financial resilience, home ownership, and long-term stability.
“Any reduction in the ISA limit would not only discourage saving, but could also reduce mortgage availability and economic growth, as the BSA’s analysis makes clear. We strongly support maintaining the current £20,000 limit to ensure that savers continue to have a meaningful and flexible way to put money aside for the future.”
The BSA’s analysis, conducted with input from former Office for Budget Responsibility economists, suggests that cutting the cash ISA limit from £20,000 to £5,000 could reduce mortgage supply by around 17,000 loans and potentially lower Ƶ GDP by £7bn over five years, due to the knock-on effects on lending and consumer activity.
Swansea Building Society also supports the BSA’s call for simplification in other parts of the ISA landscape, such as the Lifetime ISA, which currently combines saving for a first home and for retirement within a single product. The mutual also said it also agrees that focusing the lifetime ISA solely on helping first-time buyers could make it more effective and easier to understand.
Mr Williams said:“At a time when many households are trying to rebuild their savings after a period of high inflation, it’s crucial that the Government continues to support savers. building societies exist to serve their members and local communities — not external shareholders — and ensuring that people can save with confidence is central to that mission.”
