A potential cut in the cash Isa limit in Wednesday’s Budget would not necessarily persuade people to move their money into investments, a finance expert has said.
The Financial Times has reported that the annual cash Isa limit could be reduced to £12,000.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “We need an investment culture in the UK, and some of the money that has been saved in cash Isas would work harder for people if it was invested instead, 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.
“When (Hargreaves Lansdown) surveyed clients as to what they would do in the event of a cut, they were equally likely to say a cut in the allowance would mean saving elsewhere as they were to say they would invest instead.
“There will be those who should be investing instead, but the game changer here will be changes in the pipeline to allow businesses to provide more targeted support and give people the help they need to take advantage of the enormous growth potential of investment. It’s the carrot that’s going to be effective here: not the stick.”
In June, the Financial Conduct Authority (FCA) said it is aiming to reduce the “advice gap” – so that people have timely access to the help they need, at a cost they can afford, to make informed decisions about their financial lives.
The regulator has previously said that the advice gap is “stark”. Just 9% of adults received financial advice about their pensions or investments in the previous 12 months, according to the FCA’s Financial Lives survey 2024.
Ms Coles said that savings can act as a “gateway” to investing, adding: “It’s certainly something we see with our clients, so they begin by opening a cash Isa, and as they build their understanding of investments, they transfer this money into a stocks and shares Isa.
“The current system makes this straightforward, because there’s flexibility over transfers, so it’s easy to move from cash to stocks and shares and back again. If this change is introduced, the Government needs to focus on keeping journeys as simple as possible for clients.”
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.