The Chancellor is rumoured to be considering halving the annual cash ISA allowance to £10,000 in her forthcoming Budget — a move that could redirect billions of pounds from dormant savings into the UK’s investment markets.
Trading and investing platform IG has welcomed the reported plan, urging the Treasury to “stick to its guns” and describing the reform as a long-overdue step towards building a stronger national investment culture.
The company, which has launched an advertising campaign across London this week encouraging the Chancellor to follow through on the proposal, said that cutting the allowance could deliver a £7.2 billion returns boost for savers who are likely to invest their excess funds.
A £7.2bn potential uplift for savers
Using HMRC data, IG estimates that roughly one-third of all cash ISA holders — around 2.8 million people — currently deposit more than £10,000 each year. A separate YouGov survey commissioned by the firm found that 28 per cent of these savers would redirect any surplus beyond the new threshold into a stocks and shares ISA.
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Combining these figures, IG calculates that roughly 784,000 individuals could see additional returns totalling £7.2 billion over five years — or just over £9,100 each — by moving excess savings into investment products.
Widening gap between cash savings and investments
The firm based its analysis on five-year industry forecasts for UK base rates and historical average returns from global equity markets, illustrating the widening gap between cash savings and diversified investment performance.
“The Chancellor is absolutely right to tackle the UK’s overreliance on cash savings, starting with a product that does nothing for long-term wealth creation — the cash ISA,” said Michael Healy, UK managing director at IG. “Reducing the annual allowance to £10,000 sends the right message that the government is serious about getting more people investing.”
Healy added that the company believes the government could “go further” by ultimately abolishing the cash ISA altogether, arguing that such a reform would unlock significantly more capital for productive investment.
Building societies’ Cash ISA fears ‘overstated’
The proposal has prompted criticism from the Building Societies Association (BSA), which argues that limiting the cash ISA allowance could drain deposits that support mortgage lending. However, IG’s analysis suggests that the effect on the sector would be marginal.
According to the BSA’s own figures, building societies hold around 40 per cent of all cash ISA balances. IG estimates that only £1.6 billion of annual contributions currently directed to those institutions — equivalent to just 0.4 per cent of their total retail deposits — would be affected if higher-value savers switched their excess contributions into investment accounts.
“The suggestion that this change could destabilise building society funding or the mortgage market is simply scaremongering,” said Healy. “Our analysis shows the potential impact on deposits would be negligible.”
A shift in savings behaviour
The UK’s cash ISA market, launched in 1999, has swelled to more than £300 billion in assets, reflecting Britons’ deep-rooted preference for cash savings despite decades of low interest rates. While recent rises in base rates have improved returns on deposits, they still lag behind the potential long-term gains from diversified investment portfolios.
With the government seeking to channel more domestic capital into UK businesses and markets, reforming the ISA system has emerged as a symbolic and practical step.
If confirmed, the £10,000 cap would mark one of the most significant changes to the savings landscape in more than a decade, and, as IG’s campaign makes clear, a test of whether the Treasury is prepared to prioritise investment over inertia.
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