A potential cut to the cash ISA limit in the Budget wouldn’t necessarily encourage savers to move their money into investments, finance experts have said in a last-minute blow to Rachel Reeves. The Financial Times has reported the Chancellor could reduce the limit from £20,000 to £12,000 per year in the Budget on Wednesday (November 26).

Reports suggest Ms Reeves will be hoping the cut will push people who save cash to direct more of their money towards stocks and shares ISAs to stimulate Britain’s sluggish economy. But experts have warned the potential move would risk punishing savers, including pensioners who want to avoid risk.

Money Saving Expert Martin Lewis said the UK would see on Wednesday what the plans are, adding: “It’s the wrong solution, to a real problem…It will simply lead to the obvious loophole [of] people using shares ISAs to hold cash.”

Robin Fieth from the Building Societies Association said a cut to £12,000 won’t encourage more people to invest. He said it will add complexity, especially around transferring ISAs, and risks damaging the ISA brand.

Mr Fieth warned: “This may also deter people from saving and investing.”

Sarah Coles, head of personal finance at Hargreaves Lansdown, said the UK needs an investment culture and some of the money which has been saved in cash ISAs would work harder for people if it were invested instead.

She added: “But there’s no evidence that cutting the cash ISA allowance would encourage them to make the change.

“There will be people for whom cash ISAs are the most sensible home for their money, especially if they’re saving for the short-term, have significant sums of cash and are a higher earner.”

Tom Selby, director of Public Policy at AJ Bell said: “Rather than rushing ahead with ill-thought-out ISA changes at this Budget, the Chancellor needs to step back from the precipice and gather evidence on the best way to reform ISAs to support retail investors.

“There is no obvious benefit to investors, the economy or the Government from ploughing on with half-baked reforms that are unlikely to be effective and will be widely criticised by the industry and the general public.”

In October, the Treasury Committee urged the Government not to cut the cash ISA limit in the hope of persuading more people to invest in stocks and shares, saying such a move would be unlikely to incentivise savers.

The committee said the focus instead should be on improving financial literacy and enhancing access to good advice and guidance, so people can make informed decisions with their savings.

Rumours that the cash Isa limit could be reduced have been circulating for months, with various annual limits suggested to be under consideration. It is understood several potential options have been considered.

Building societies have argued cash ISA savings are a vital funding source for their mortgage lending.

They have argued if ISA inflows fall, the cost of funding could rise, potentially making mortgages more expensive and harder to access.

According to HM Revenue and Customs (HMRC) figures released in September, around 15 million adult ISA accounts were subscribed to in 2023/24, up from 12.4 million in 2022/23. Just under 10 million adult ISA accounts subscribed to in 2023/24 were cash ISAS, marking a 2.1 million increase compared with 2023/24.

Around £103billion was subscribed to adult ISAs in 2023-24, an increase of £31.4bn compared with 2022/23. The increase was driven by the rise in cash ISA subscriptions, which grew by £27.9bn, according to HMRC.

A recent freedom of information (FOI) request made to HMRC by InvestEngine found the average of the top 25 stocks and shares ISA pots was worth around 17 times the average of the biggest cash ISA accounts.

The average value of the top 25 highest value stocks and shares ISAs only was £10,980,000. The average value of the top 25 highest value cash ISAs only is £640,000, according to the figures, for the tax year 2022/23.

The HMRC document also said there were around 3,080 ISA accounts with a market value of £1million-plus in 2022/23.