Chancellor set to U-turn on Isa allowance cut to £12,000 – reports

Chancellor John Healey is reportedly planning to reverse the decision to slash the annual Isa allowance from £20,000 to £12,000 in his inaugural Budget.

Mr Healey is said to believe the allowance cut was the wrong tool to persuade Britons to invest more in stocks and shares and would rather look to educate savers on the benefits of equity investing, according to the Financial Times.

Former chancellor Rachel Reeves announced the Isa cut for savers aged under 65 at the autumn budget last year, with the change set to come into effect in April 2027, as she looked to encourage investment in the stock market.

But it was widely criticised for impacting a well-understood and well-liked savings product and was seen as being unlikely to tempt savers to put money into riskier investments.

Isas, or individual savings accounts, are exempt from tax on interest, as well as capital gains and income taxes.

No 11 Downing Street, London, ahead of Chancellor John Healey’s first Budget (Jordan Pettitt/PA)

PA Wire

They are the most popular savings product in the UK, with figures released by HMRC in September showing around £135.7 billion was subscribed to adult Isas in the tax year 2024-25 – a £32.7 billion annual increase.

The £32.7 billion increase was driven by a rise in cash Isa subscriptions, which grew by 37.5% or £26.1 billion.

Stocks and shares Isa subscriptions saw a 19.7% or £6.1 billion annual increase, and Lifetime Isa subscriptions had a 20.1% or £472 million rise.

It is thought retail savings banks and building societies will cheer the reported move to U-turn on the Isa allowance, as keeping the flow of savings deposits helps provide them with funding to lend and boost their balance sheets.

The Isa move would offer a crumb of comfort to the banking industry, with banks widely expecting to be hit with higher taxes on the sector at the Budget on Wednesday.

Maike Currie, vice president of personal finance at PensionBee, said: “Scrapping the planned cut to the cash Isa allowance would be a welcome U-turn.

“Saving was never the problem; the challenge is giving people the confidence to take the next step into investing.

“We warned at the time that restricting cash Isas risked penalising the very people who need the most help building long-term wealth, women in particular.

“You don’t persuade people to eat more meat by rationing their vegetables.”