Chancellor John Healey has reversed the government's plan to cut the cash ISA allowance to £12,000 for under 65s.
The policy, announced in last year's Budget by previous chancellor Rachel Reeves, would maintain the £20,000 cash ISA limit, but require some of it must be invested in stocks and shares.
From April 2027, £8,000 of the allowance was due to be "exclusively for investment", with over 65s retaining the full cash allowance.
However, in today's Budget Healey said: "I will not go ahead with the cut to the tax free amount that people can put into a cash ISA. The limit will stay at £20,000 per year, tax free for people of all ages to make investment more accessible."
Industry experts were split on the decision, with some welcoming the ability to build tax-free savings without taking on additional investment risk, but others warning that protecting tax incentives that encourage people to sit on cash rather than invest is a "deeply misguided decision".
Winston Ruddick, senior financial planner at financial services consultancy Broadstone, commented: “Protecting the £20,000 cash ISA allowance is welcome news for savers, preserving their ability to build tax-free savings without taking on additional investment risk.
“While encouraging more people to invest is a sensible ambition that could boost long-term returns and channel more capital into UK equities, restricting access to tax-efficient cash savings was always a blunt instrument to achieve this.
“Cash ISAs are a simple, accessible and widely understood savings product, often providing a first step towards building longer-term savings habits and financial security. They play a vital role in financial planning, particularly for those with shorter-term savings goals or a lower appetite for risk.
“The government is right to focus on improving financial education and building confidence in investing, helping people make informed decisions about their financial futures.”
Jason Hollands, managing director at online investment platform Bestinvest by Evelyn Partners, said: "The planned cut to the cash ISA allowance for under 65s next April being scrapped in today’s Budget will be welcome news for savers. With a two-percentage point increase in tax on savings interest also due to come into effect in the next tax year, cutting the cash ISA allowance would have limited savers’ ability to mitigate this.
"The government had argued that the rationale for cutting the cash ISA allowance was to steer more people to invest, rather than it being a revenue raising measure. Encouraging more people to invest is a worthy and welcome project but cutting the amount people can save in a cash ISA seemed like a blunt instrument to try and achieve this. Further complications around flagged anti-circumvention measures for investment ISAs threatened to damage understanding of and trust in both products.
"I suspect many of those who would have felt limited by the planned reduction to cash ISA allowances for under 65s would simply have put their cash in taxable savings account instead, making them worse off.
"Getting more people to invest requires a cultural shift, better education, the new targeted support regulatory regime to bed in and more creative ways to make investing more accessible to more people, e.g. through exploring ideas like offering regular investing schemes through the workplace."
Rachel Springall, Finance Expert at Moneyfactscompare, commented: “Savers will be delighted to see the cash ISA allowance U-turn by the government, removing one of many complexities that were due to come into force in April. As warned when the changes were officially announced last year, this was a disappointing decision that added an extra layer of confusion. The time and cost that providers would have spent to get their systems ready for the changes is such a waste, and it triggered hordes of savers to plough billions of pounds into cash ISAs.
“This U-turn will come as a sigh of relief for providers, particularly mutuals, which rely on ISA deposits as an important source of funding. A reduction in the allowance could have weakened the appeal of cash ISAs, reducing the flow of deposits, which could have inflated lending costs. Maintaining the cash ISA allowance provides welcome certainty for both savers and the industry, but there is more that needs to be done to help consumers explore products that can help shield their hard-earned cash from tax, especially as savings income tax is rising by 2% across the board from April 2027.
However, Michael Healy, CEO of IG Consumer, argued: "The Chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy. At a time when Britain desperately needs growth, protecting tax incentives that encourage people to sit on cash rather than invest is a deeply misguided decision.
"Cash ISA subscriptions surged by £26.1 billion last year, more than four times the increase in Stocks & Shares ISAs, yet the Chancellor has chosen to reinforce the very savings culture that is holding Britain back. Worse still, IG modelling suggests phasing out cash ISAs for new contributions could generate up to £610 million in additional annual tax revenue by 2032-33, without touching existing savings.
"This Budget should have been about making Britain's money work harder for its people and its economy instead of defending a tax break that most savers don't need. The Chancellor should have gone further by phasing out cash ISAs for new contributions and redirecting those incentives towards helping households invest, build financial security and share in Britain's future growth."
Kevin Brown, savings specialist at Scottish Friendly, agreed: “It’s surprising, and hugely disappointing, that the Chancellor has abandoned the planned reduction in the cash ISA allowance. We supported that change as a step towards encouraging more people to consider investing and building better financial resilience across households in the UK.
“By reversing plans this afternoon, the government will have to answer the lingering question of how it will now deliver the investing culture it wants to create.
“Cash plays an essential role in household finances. It provides an emergency buffer and security for money people expect to need in the near term. But holding cash for many years also carries risks, particularly when inflation erodes its spending power. For those who can put money away for the long term and can accept investment risk, investing offers the potential for better returns.
“Scottish Friendly’s position has consistently been that changing the allowance alone would not transform behaviour. It needs to be backed by the right education and public awareness campaigns to help people understand when saving is appropriate, when investing might suit their goals, and the risks involved.
“With the reduction now scrapped, that work becomes even more important. We now hope the government will explain how it will help give people the confidence to consider investing. Keeping the allowance unchanged does little on its own to address the barriers that prevent people from taking that first step.”
