UK budget shock: Rachel Reeves plans cash ISA cut that could slash 60,000 mortgages a year — Building societies warn of crisis

As Chancellor Rachel Reeves prepares to deliver her first major Budget in November, one proposal is already sparking a heated financial debate across the UK — a sharp cut to the tax-free allowance on cash ISAs.

According to insiders, Reeves is considering reducing the annual limit from £20,000 to around £10,000 in a move designed to shift savings from low-yielding cash accounts into investment markets. The government says the plan would empower ordinary Britons to build long-term wealth through stock ownership, but critics warn it could backfire — especially on building societies and first-time homebuyers.

A Move to “Build a Shareholding Democracy”

Lucy Rigby, the Economic Secretary to the Treasury, described the planned reform as “Thatcherite,” referencing the 1980s campaign under Margaret Thatcher that encouraged mass participation in company ownership. The Treasury’s goal, Rigby said, is to “build a shareholding democracy” — encouraging more households to hold equities rather than rely solely on cash savings.

In theory, the shift could boost the UK’s capital markets by channeling billions in idle savings toward businesses. But for many Britons, particularly retirees and cautious savers, the proposed cut represents an erosion of one of the few safe, tax-free ways to preserve wealth.

Mortgage Market Fallout

The Building Societies Association (BSA) issued a stark warning that the move could deal a heavy blow to the housing market. Reducing the annual ISA allowance, they say, could shrink building societies’ mortgage lending by 5% — translating to roughly 17,000 fewer home loans each year.

If the policy results in a major shift of funds away from building society deposits, total mortgage issuance could fall by as much as 60,000 loans annually, the group estimates. That would hit first-time buyers the hardest, given that such borrowers typically rely on building societies for competitive, low-deposit mortgages.

“Saving is the foundation of investment,” said BSA chief executive Robin Fieth. “If you discourage saving, you damage the pipeline that ultimately funds mortgages. A crude reduction of the cash ISA limit won’t deliver the government’s goal of encouraging investment — it’ll just undermine confidence.”

Committee Pushback

The Treasury Select Committee, chaired by Dame Meg Hillier, has also advised against cutting the cash ISA threshold. The committee’s latest report described cash ISAs as “one of the most popular and well-understood savings products in the UK” and warned that slashing their limit could have “negative knock-on effects” for consumers.

“This is not the right time to cut the cash ISA limit,” Hillier said. “The focus should instead be on improving financial education and access to quality advice so people can make informed investment decisions.”

Economic Backdrop and Fiscal Pressure

Reeves faces a tight fiscal environment, with a reported £22 billion shortfall ahead of the Budget. The government’s fiscal rules require debt to fall as a share of national income by the end of the parliament — leaving Reeves little room to maneuver.

The Treasury argues that encouraging investment rather than saving is vital for long-term growth. “Someone who invested £1,000 each year since 1999 in a stocks and shares ISA would have £50,000 more today than if they’d kept it in cash,” notes an analysis by AJ Bell.

But economists point out that not all savers are willing or able to take on stock market risk. With inflation pressures still present and household budgets stretched, many prefer the safety of cash — even with modest returns.

Political and Public Reaction

For Reeves, the political balancing act is delicate. On one hand, the move aligns with Labour’s pro-growth, pro-investment vision. On the other, it risks alienating millions of small savers who see the cash ISA as a cornerstone of financial prudence.

The Treasury’s final decision is still under discussion, but sources suggest the £10,000 figure is emerging as the most likely outcome. The government insists the change will “make people better off in the long run,” while financial institutions warn it could do the opposite in the short term.

Either way, the November Budget is shaping up to be one of the most consequential for Britain’s personal finance landscape in years — pitting the promise of investment-driven prosperity against the realities of household saving and mortgage access.

FAQ Section

1. What is the current cash ISA limit in the UK?
The current annual cash ISA allowance is £20,000, allowing savers to earn interest tax-free.

2. What change is the government proposing?
Chancellor Rachel Reeves is considering reducing the cash ISA limit to around £10,000 in the November Budget.

3. Why is the government planning this cut?
The aim is to encourage savers to move money into stocks and shares, supporting investment and economic growth.

4. Who could be most affected by the change?
First-time homebuyers and cautious savers, as building societies rely on cash ISA deposits to fund mortgages.

5. What do experts say about the proposal?
Building societies and MPs warn the cut could shrink mortgage availability and discourage savings rather than boost investment.