Cash ISAs: A cornerstone of responsible saving, not a barrier to investment
As the Chancellor prepares for her Mansion House speech next week, proposals to reduce the annual Cash ISA allowance are reportedly on the table. Such a move risks undermining a trusted savings vehicle for millions without meaningfully boosting domestic investment.
Cash ISAs are among the UK’s most popular savings products, held by 18 million adults. With an average balance of just under £13,400, these accounts support practical goals like home deposits, weddings emergency funds, and help people to manage their finances in retirement. They are not idle pots of money; they are a vital part of the UK’s financial ecosystem.
Building societies and mutual-owned banks, which hold £192 billion in Cash ISA balances, representing 47 per cent of the total market, rely on these funds to provide mortgages and loans. As Sam Woods of the Prudential Regulation Authority recently noted, policy-driven shifts in savings can have “significant, yet often overlooked, consequences.” Reducing the Cash ISA allowance could disrupt mortgage markets and hinder the Government’s goal of delivering 1.5 million new homes.
The idea that cutting the Cash ISA limit will drive more investment in UK companies lacks evidence. While we support the call to get more people investing where it is appropriate for them to do so, it must respect individual risk appetites. Nearly 90 per cent of Cash ISA savers are unwilling to risk their capital. Though 67 per cent are aware of Stocks & Shares ISAs, only 21 per cent of UK adults hold one, suggesting the issue is suitability not awareness. Simply changing Cash ISA limits is therefore unlikely to result in more people investing, but it will hurt people who are responsibly saving for short-term goals, when investing is not appropriate.
Even if savers were nudged into investment products, the impact on UK companies is likely be limited. According to the Investment Association, only 11.5 per cent of investment fund assets are currently allocated to UK equities. Redirecting savings may simply shift money into global portfolios or bonds, not domestic growth.
Rather than limiting choice, we would urge the Government to empower it. A national awareness campaign, funded by investment managers and modelled on the successful “Tell Sid “Campaign of the 1980s, could help educate consumers about investment benefits and risks, enabling informed decisions based on personal goals.
The ISA system has remained stable and trusted since its introduction by the then Labour Government in 1999. Any changes should preserve this clarity. If adjustments are made, they should apply equally across Cash and Stocks & Shares ISAs to avoid unnecessary complexity.
In short, Cash ISAs are not the problem, they are part of the solution. They support responsible saving, underpin mortgage lending, and provide financial security for millions.
For further information on the important role Cash ISAs play, contact pressoffice@bsa.org.uk and follow the Building Societies Association on LinkedIn
