- Cut to cash ISA allowance confirmed by chancellor Rachel Reeves
- Annual subscription allowance on Cash ISAs falls to £12,000 from 6 April 2027
- Stocks and Shares allowance remains at £20,000 and over 65s also retain full £20,000 Cash ISA allowance
- AJ Bell has long campaigned for simplification of the ISA market to make it easier for people to save and invest…
- …but today’s announcement adds complexity and will do little to help encourage investing
AJ Bell CEO, Michael Summersgill, says:
“The chancellor clearly recognises the huge benefit of long-term investing and the boost it can provide to people’s finances, but today’s announcement is a missed opportunity to reshape ISAs with the consumer in mind.
“Government should be focussed squarely on simplifying the market to make it easier for ordinary people to navigate, providing flexibility for consumers, rather than adding friction in the form of new allowances and added complexity.
“Before it implements these proposals government should ask two key questions. Firstly, handed a blank sheet of paper would any serious person design a system with umpteen ISA products all with different allowances?
“Secondly, is there even a shred of evidence to support the idea that this measure will encourage people to invest?
“The answer to both those questions is no. Government should go back to the drawing board and examine the evidence in earnest before these proposals move forward.”
Background
AJ Bell’s ISA campaign work:
AJ Bell has long campaigned for simplification of the ISA system, working with both this government and the previous administration to call for measures to make it easier for people to save and invest. In its One ISA paper launched in 2023, the business highlighted the complexity of the current ISA system, and proposed consolidating all existing ISA variations into one single ISA product.
Before winning the election last year, Labour made clear its intentions to simplify the ISA system to try and foster a culture of retail investing in the UK. AJ Bell has led calls on how the government should do this, initially by merging Cash and Stocks and Shares ISAs and removing barriers to investing as a first step towards consolidation of the ISA market.
At the Spring Statement in March this year, Rachel Reeves again outlined the government’s ambition to reform the ISA system, with a focus on getting the ‘balance right’ between cash and equities. AJ Bell subsequently urged the government to reform the system for the benefit of consumers by:
- Radically simplifying the upfront choice available to investors, initially by merging Cash ISAs and Stocks and Shares ISAs into a single main ISA product
- Introducing improved help for savers and investors through ‘Targeted Support’ reforms
- Government should remove the disincentive to invest in UK Plc by scrapping stamp duty on UK shares bought through ISAs – a reform which would cost around £120 million
It then emerged that the government was considering cutting the Cash ISA allowance, but AJ Bell consumer research showed that only one fifth of Cash ISA holders would invest in the stock market if the Cash ISA allowance was cut.
The case for ISA simplification:
A recent behavioural economics review commission by AJ Bell illustrates the impact divisive choice and friction in the ISA market has on consumer behaviour. Faced with excess complexity, people often choose the path of least resistance in the form of cash saving.
A further behavioural trial testing the impact of a combined ISA system finds the current UK ISA landscape is fragmented, with separate Cash ISAs and Stocks and Shares ISAs often siloed across providers. This structural separation requires consumers to make early, binary decisions about products. The report explores the potential effects of simplifying the system by combining Cash and Stocks and Shares ISAs into a single, unified product.
The report finds a number of important barriers that discourage uptake of Stocks and Shares ISAs in the current market. These include.
- fear of losing money
- lack of knowledge and confidence
- limited spare cash and competing priorities
- preference for certainty and liquidity (cash ISAs / fixed rates / Premium Bonds)
- past bad experiences and low trust
While many of these factors cannot be overcome through reforms of ISA system architecture, the research finds a Combined ISA, simultaneously offering cash and investments within an integrated ISA product, can help nudge people toward investing in a variety of ways.
Behavioural trials were conducted through a structured online experiment with 2,400 participants. The trial split participants into two separate groups:
- Half the participants were shown ISAs split equally between separate cash and stocks and shares ISA accounts, simulating the current ISA landscape.
- Half were shown an integrated ISA split equally between cash and stocks and shares, but with both held as a separate sleeves within the same account, simulating a new, Combined ISA landscape
The findings show combining cash and investments into an integrated product nudged behaviours and experience, resulting in:
- Higher satisfaction with positive returns and less dissatisfaction with negative returns
- A modest increase in the overall preference for stocks and shares and a modest reduction in the number of people completely averse to holdings investments
- Increased tendency to take on some investment risk
- Users of a combined product may be more resistant to reactive selling in a market downturn and hold their investments for longer
ISA cut is unpopular:
What the nation thinks of potential Budget changes, according to polling from AJ Bell and Opinium:
Source: AJ Bell/Opinium. *Based on a nationally and politically representative survey of 2,050 UK adults, carried out by Opinium on behalf of AJ Bell between 23 and 24 October 2025.