A significant financial dispute has emerged between major investment brokers and UK building societies, centring on potential government plans to reduce the annual cash ISA allowance.
The Push for a £10,000 ISA Limit
London-based trading platform IG is leading the charge, urging Chancellor Rachel Reeves to act on rumours and cut the cash ISA limit from its current £20,000 down to £10,000. This proposal follows internal analysis by IG which suggests such a move could unlock a substantial £7.2bn boost for the economy.
The Treasury's broader ambition is to encourage retail investment to stimulate economic growth. This includes initiatives like a planned "targeted support" scheme before the 2026 ISA season and potential cuts to stamp duty on shares. However, the potential overhaul of ISA rules, particularly the cash ISA ceiling, has become a focal point. Critics have long argued that the high allowance incentivises Britons to hoard cash in low-yield accounts instead of investing in the stock market.
The Potential £7bn Investor Windfall
According to IG's research, approximately one third of all cash ISA holders—around 2.8 million people—currently contribute more than £10,000 annually. Their study indicates that nearly 30% of these savers would move their excess funds into stocks and shares if the allowance were reduced.
This shift in behaviour is projected to generate potential returns exceeding £7bn over a five-year period, equating to an average of over £9,100 per saver.
Michael Healy, Managing Director of IG, stated: "The Chancellor is absolutely right to tackle the UK’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." Healy further encouraged the government to consider abolishing the cash ISA product entirely.
Building Societies Mount a Fierce Defence
This is not the first time the Treasury has considered this measure; a similar plan was explored during the summer but was abandoned following fierce backlash from building societies.
The providers argue that the cash ISAs they hold are a vital source of funding for mortgages. They contend that reducing these inflows would potentially make home loans more expensive for consumers across the UK.
IG has refuted these claims, labelling them as "largely overstated." While the Building Society Association reports that its members hold about 40% of all cash ISA balances, IG's analysis suggests that only around £1.6bn of contributions normally directed to building societies would be redirected. This sum represents a mere 0.4% of building societies' total retail deposits, indicating a minimal overall impact on the sector.
Michael Healy responded to the concerns, saying: "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."
Building societies have hit back, accusing IG of missing the fundamental point. Sue Hayes, Chief Executive Officer of the Nottingham Building Society, emphasised the ongoing need for accessible cash savings. She 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."
