Budget: ISA cut ‘closes one door, but opens another’
The diminished cash ISA allowance unveiled in the UK Budget has drawn a warm response from parts of the alternative credit industry, who suggest it will redirect capital into alternative investment vehicles such as innovative finance ISAs (IFISAs).
In the House of Commons, the UK Chancellor Rachel Reeves confirmed that the current £20,000 cash ISA allowance will be cut to £12,000 as part of a series of measures that also include wider tax rises for the country. The reduction will take effect from April 2027, though over-65s will be exempt and will continue to benefit from the £20,000 limit.
Reeves’ move is intended to encourage savers to consider investment-based ISAs, including stocks and shares ISAs and IFISAs, to help stimulate economic growth.
Jason Ferrando, chief executive of peer-to-peer property lender easyMoney, said the reduction marks a “significant shift” in how the government wants people to think about their savings.
“While this may feel like a challenge for traditional savers, it also creates a clear opportunity for individuals to diversify into investment-based ISAs,” Ferrando said. “Relying solely on cash savings will only get harder for people trying to grow their wealth in real terms. The Budget may have closed one door, but it has opened another.”
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Kawai Chung, chief executive at Folk2Folk, also welcomed the move, saying that today’s Budget made it clear the government wants ISA funds supporting British businesses rather than sitting in cash.
“As an ISA provider facilitating investment into regional UK small businesses, we welcome the renewed focus on strengthening the link between ISA capital and British business growth,” Chung said. “This shift also serves as a timely reminder for investors to review how their ISA allowance is working for them, and whether it is delivering the return and impact they’re aiming for.”
Meanwhile, Rachel Springall, finance expert at Moneyfacts, noted: “Unless the personal savings allowance is abolished in future, a lower cash ISA limit could mean savers earn more interest outside an ISA. This may strengthen the case for investing in a stocks and shares ISA.”
Read more: EasyMoney’s innovative finance ISA hits £100m
However, others have reacted less positively. With many Brits remaining cautious about investing, critics argue that significant educational work will be required to shift long-held cultural attitudes towards investment, and some do not believe the measure will be enough to change behaviour.
This was picked up on by Neil Faulkner, chief executive and head of research at 4thWay, who stated that many Brits don’t have the training or skills to assess their risk-reward balance for IFISAs and “are very cautious”.
“Therefore, movement towards IFISAs will be a trickle rather than a flood,” said Faulkner. “The time will come when there is much greater investment in this space, but it’s not arrived yet.”
“Cutting the cash ISA allowance is the wrong lever to pull and has once again delayed the wider goal of ISA simplification,” said Richard Wilson, chief executive of Interactive Investor. “For some, saving in cash is essential, and it is unproductive for the chancellor to hope this move alone will drive people into the markets.”
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