Despite savers pouring a record £30 billion into cash ISAs since April 2025, whispers are growing that Chancellor Rachel Reeves plans to slash the annual allowance from £20,000 to just £12,000 — a move that could upend how millions of Britons save. The official government line, confirmed by HM Revenue and Customs (HMRC) and Yorkshire Building Society (YBS), remains unchanged: the 2025/26 tax year allowance is still £20,000, running from April 6, 2025, to April 5, 2026. But behind closed doors, Treasury officials are reportedly weighing a drastic reduction. And the timing? Just days before the Autumn BudgetLondon on November 26, 2025.
Why Savers Are Clinging to Cash ISAs
It’s counterintuitive. Interest rates have been falling. Fixed savings accounts are offering less than they did a year ago. Yet, cash ISAs are more popular than ever. Why? Because for many, it’s not about the yield — it’s about safety.
“Savers find comfort in cash ISAs, particularly those who are being hit by fiscal drag and do not want to risk their pot in a stocks and shares ISA,” said Springall, a financial analyst cited by Moneyfactscompare.co.uk. Fiscal drag — where inflation pushes people into higher tax brackets without a real pay rise — is squeezing households. With inflation still hovering around 2.8%, and wage growth barely keeping pace, the tax-free wrapper of a cash ISA is the only shield many have left.
And the numbers don’t lie. The Bank of England recorded £30 billion in new cash ISA deposits since April — the highest ever for a single year. That’s more than the entire combined total of 2023 and 2024. People aren’t just saving. They’re hiding money from the taxman. And now, the government might take that safety net away.
The Proposed Cut — And Why It’s Flawed
The rumored reduction — from £20,000 to £12,000 — isn’t just a tweak. It’s a gut punch. For a household saving £1,500 a month, that’s a 40% drop in tax-free capacity. Springall calls it “a futile attempt to push risk-averse savers to invest.”
Here’s the problem: most of those £30 billion in deposits aren’t coming from wealthy investors. They’re coming from middle-income families — teachers, nurses, small business owners — who’ve seen their real incomes erode. They’re not looking for high returns. They’re looking for peace of mind. And cash ISAs deliver that. Stocks and shares ISAs? Too volatile. Too scary. Too risky for someone who can’t afford to lose £5,000 in a market dip.
“If you cut the allowance, you’re not making people invest,” Springall added. “You’re making them abandon ISAs entirely. And that’s when the chaos starts.”
Retail Funding and the Bank Run Risk
Behind the scenes, banks and building societies are bracing. Cash ISAs are a critical source of low-cost retail funding. When savers park money in ISAs, lenders get stable deposits to fund mortgages and business loans. If people pull out because the tax benefit disappears, institutions could face a funding crunch.
“A £8,000 cut per person means £20 billion in potential deposit flight,” said a senior analyst at a major UK bank, speaking anonymously. “We’re not talking about a few million. We’re talking about systemic pressure.”
YBS, one of the UK’s largest building societies, still lists the £20,000 allowance on its website — and has no plans to change. But if the Autumn Budget delivers a surprise, institutions will scramble. Flexible ISAs — which allow savers to withdraw and re-deposit within the same tax year — would become even more valuable. But if the allowance drops, those features might feel pointless. Why bother with the paperwork if you’re only allowed £12,000?
What Happens If the Cut Goes Through?
Let’s say the £12,000 cap is announced on November 26. Here’s what happens next:
- People with £15,000 already saved in 2025 will rush to deposit the remaining £5,000 before the end of the tax year — creating a last-minute surge.
- Many will shift to standard savings accounts, even if rates are lower, just to avoid the new cap.
- Financial advisers will be flooded with calls — and many clients will be furious.
- Providers like Nationwide and Barclays may introduce new products to fill the gap — but they’ll be slower, more complex, and less trusted.
And here’s the kicker: the government expects to gain more tax revenue from the change. But the reality? If savers abandon ISAs entirely, the tax take might not rise at all — it could even fall, as more money flows into non-ISA accounts that aren’t tracked as closely.
What’s Next? The November 26 Countdown
The Autumn BudgetLondon is now the focal point. The Treasury has stayed silent. No leaks. No denials. Just radio silence.
But pressure is mounting. The Bank of England has warned of household financial stress. The Citizens Advice Bureau reported a 34% spike in queries about savings and tax in the last quarter. And MPs from both parties are starting to speak out.
“This isn’t fiscal responsibility,” said Labour MP Eleanor Hartley. “It’s punishing the very people who are trying to do the right thing.”
With the clock ticking toward November 26, savers are watching. And waiting. And saving every last pound they can — just in case.
Frequently Asked Questions
How would a £12,000 ISA allowance affect a typical household?
A household saving £1,500 monthly would lose the ability to shelter £8,000 in tax-free savings annually — a 40% reduction. That means £160 in lost tax savings per year for someone in the 20% tax bracket, or £320 for a higher-rate taxpayer. Many would shift to standard savings accounts, even with lower rates, just to avoid the cap.
Why are cash ISAs still popular despite falling interest rates?
Cash ISAs remain popular because they offer tax-free growth — not high yields. With inflation and fiscal drag squeezing incomes, savers prioritize capital protection over returns. The £30 billion deposited in 2025 reflects a flight to safety, not speculation. People trust ISAs because they’re guaranteed by the FSCS up to £85,000.
What’s the difference between flexible and non-flexible ISAs?
Flexible ISAs let you withdraw money and re-deposit it within the same tax year without using up your allowance. For example, if you deposit £10,000 and withdraw £3,000, you can still deposit £13,000 more — keeping your full £20,000 allowance. Non-flexible ISAs don’t allow this, making them far less useful for those needing liquidity.
Could this cut backfire on the government’s finances?
Absolutely. If savers abandon ISAs for standard accounts, HMRC loses visibility into savings behavior. Worse, if people shift money into taxable accounts, the government might collect less in the long run due to reduced financial product fees and lower bank lending activity. The intended tax gain could evaporate — replaced by economic friction.
What should savers do before the Autumn Budget?
Max out your current £20,000 allowance before April 5, 2026. Use flexible ISAs to manage cash flow. Consider splitting funds between cash and stocks and shares ISAs if you can tolerate risk. And don’t wait until November — if the cut is coming, the window to act will close fast.
Has the government ever cut the ISA allowance before?
Never. Since ISAs replaced TESSAs and PEPs in 1999, the allowance has only increased — from £7,000 to £20,000. Even during austerity, it rose. A cut would be unprecedented, signaling a major shift in how the government views personal savings — and could damage public trust in long-term financial planning.