Rachel Reeves is considering cutting the cash ISA tax-free limit to £4,000 per year following discussions with fund managers.

During a meeting at 11 Downing Street, senior City executives and the Chancellor explored ways to boost economic growth and encourage more investment from UK savers. One proposal included simplifying tax-free savings by capping the cash ISA allowance at £4,000 annually. Treasury officials stated that Reeves was “listening to ideas.”

Currently, savers can deposit up to £20,000 across various ISA types—cash, stocks and shares, innovative finance, and lifetime—without incurring tax on returns. However, some City executives argue that the availability of cash ISAs discourages investment in British businesses. Savings experts warn that shifting focus toward stocks and shares ISAs could phase out the cash ISA altogether.

Reeves emphasized her commitment to economic growth, stating: “I am determined to go further and faster to drive growth and put more money into people’s pockets through our Plan for Change.”

Fidelity International, managing $893 billion (£710 billion) in assets, advocates for merging all ISAs into a single type, estimating this move could create 6.4 million new investors. The firm also proposes restricting cash ISAs to just £4,000 of the £20,000 allowance.

James Carter, head of platform product policy at Fidelity International, supports simplifying ISAs, arguing that the current variety limits economies of scale, stifles innovation, and increases costs for investors.

Economic Secretary to the Treasury Emma Reynolds recently questioned why “hundreds of billions of pounds” remain in cash ISAs, suggesting the UK has failed to foster an investment culture.

Despite speculation, sources within building societies—major cash ISA providers—believe significant changes to the scheme are unlikely.

In 2024, savers deposited a record £49.8 billion into cash ISAs, up 6% from the previous high of £47.1 billion in 2023. Rising interest rates contributed to the surge, with many taxpayers benefiting from tax-free savings.

If the cash ISA limit is reduced, higher-rate taxpayers could lose up to £4,680 in tax savings over five years on a £42,423 savings pot, according to analysis by wealth management firm Quilter.

Following reports in January that Reeves was reviewing cash ISAs, savers rushed to open accounts. Between then and February 12, 56% of new accounts at Hargreaves Lansdown were cash ISAs, with overall deposits increasing by 325% compared to the previous year.