Millions of savers set to keep cash Isa allowance

Millions of savers and billpayers look set to keep protections that a planned overhaul would have taken away, as reports suggest chancellor John Healey will reverse cuts to the annual cash Isa allowance and scrap standing charges on household gas bills in today’s budget.

The cash Isa reversal matters most directly to the people who rely on the product. Under the plans drawn up by Healey’s predecessor, from 6 April 2027 anyone under 65 would only have been allowed to save up to £12,000 a year in a cash Isa, with anything above that forced into a stocks and shares Isa. The allowance had stood at £20,000. If the cut is ditched, banks and building societies that offer cash Isas are expected to keep the £20,000 limit, and savers keep a familiar, straightforward route to tax-free saving.

Lawrence Chan, head of savings at Nottingham Building Society, called the expected reversal “great news”, saying it suggests the government understands that many people value having a secure plan they can stick to rather than chasing the highest return. A cash Isa, he noted, is a way to build a deposit for a first home, keep money back for unexpected costs or simply feel more secure about the future. He added that reducing the allowance would have made a trusted route to saving less useful for the people who rely on it, and that members’ savings at building societies help fund mortgages, including for first-time buyers.

Winston Ruddick, senior financial planner at consultancy Broadstone, agreed the protection of the £20,000 allowance is welcome news for savers, helping people build tax-free savings without taking on the additional investment risk of the stock market. Maike Currie, VP personal finance at PensionBee, went further, arguing that a lower limit would have penalised women in particular, warning at the time that restricting cash Isas risked penalising the very people who need the most help building long-term wealth.

Not everyone sees it that way. Michael Healy, CEO of IG Consumer, said the chancellor had squandered a golden opportunity to help households build long-term wealth, noting that cash ISA subscriptions surged by £26.1 billion last year, more than four times the increase in Stocks & Shares ISAs, and that IG modelling suggests phasing out cash ISAs for new contributions could generate up to £610 million in additional annual tax revenue by 2032-33. IG does not offer a cash Isa, though its Stocks & Shares ISA does pay interest on uninvested cash.

The reversal has not been cost-free. Jo Harris, chief customer and operations officer at Quilter, pointed out that the industry has already spent an inordinate amount of time and resource preparing systems, products and customer communications for changes that will now never take effect, calling the pattern of announcing complex reforms and then reversing course the worst kind of policymaking. Tom Selby, director of public policy at AJ Bell, had criticised Reeves’s “calamitous reform agenda” as a car crash lamented by most of the retail investment industry and by building societies, who warned it would increase mortgage costs.

Meanwhile, the second piece of news with a direct bearing on household finances is the removal of standing charges from gas bills in Great Britain. These fixed daily fees, about £108 a year for the typical household, cover the cost of connecting to a supply and are paid even by people who use very little energy. Healey will ask regulator Ofgem to end what he calls an “unfair and outdated practice” in 2027, or as soon as possible afterwards, shifting the cost into the unit rate instead. The Treasury says this could save 60% of account-holding households an average of £45 off their annual bill.

The change is not a guaranteed saving for everyone. Because the cost moves onto the unit rate, heavy gas users could pay more overall. MoneySavingExpert has estimated the move could add around 1p to each kWh of gas, taking the typical unit rate from 7.97p/kWh to 9.11p/kWh. The Treasury argues households will still have better control over their bills and says targeted mitigation for a small number of households will be set out in future. Energy secretary Miatta Fahnbulleh said tackling affordability is her number one priority. Nesta welcomed the move, noting it will provide relief to the poorest households who ration their gas use, while the Green Party accused the government of tinkering rather than bold action, pointing to bills predicted to rise 16% in January to about £2,000 for a typical dual fuel household.

All of this lands on a budget day when City investors expect caution. UK borrowing costs are rising this morning, with 10-year gilt yields up almost three basis points to 5.367% and 30-year yields at 5.769%, though the move is part of a global rise also seen in France, Germany and the US, and follows a 1.3% rise in Brent crude to $115.40 a barrel. Economists predict the chancellor’s fiscal headroom has fallen from £23.6bn in March to between £15bn and £20bn. The budget statement begins at 12.30pm GMT, with the Office for Budget Responsibility’s outlook at 1.30pm and its press conference at 2.30pm. Whether the promised mitigation for heavy gas users arrives before those January bill rises is the question many households will be watching for.