Major update on cash ISA changes as Martin Lewis urges Rachel Reeves not to make 'mistake'

Rachel Reeves is reported to have put her plans to change cash ISAs on hold, amid speculation that the Chancellor was set to announce a major shake-up during her Mansion House speech next week.

A cash ISA is a type of savings account where you can save up to £20,000 each tax year and any savings interest you make is tax-free.

Reports previously suggested that the Government has discussed lowering the threshold for the cash part of the ISA to as low as £4,000, in order to try and encourage people to invest in stocks and shares ISAs instead.

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Stocks and shares ISAs don't come with a set rate of interest - instead, any return on your money is based on stock market performance.

The Financial Times today reported that plans to reform cash ISAs are not off the table, but Government officials want more time to consult on how it would work. The Chancellor is due to give her Mansion House speech next Tuesday.

Sarah Coles, head of personal finance, Hargreaves Lansdown, said: “The cash ISA allowance is safe – at least for now. It’s great that the government wants to further consult industry - rather than rushing into a change that would be a real blow for savers and may not get more people to invest anyway.

“This decision makes perfect sense, because it should give the government the chance to see the impact of the other steps it’s taking to boost investment that could really be gamechangers for retail investment.“

It comes after MoneySavingExpert.com founder Martin Lewis previously released a statement saying cutting the cash ISA limit would be “a mistake”. A number of building societies have also urged the Chancellor to leave the threshold in place.

However, investment companies say encouraging people to put money into stocks and shares instead could benefit companies and the UK economy.

Speaking to the BBC back in May, Ms Reeves said she would not reduce the overall £20,000 ISA limit - but stopped short of saying if changes to the cash element specifically were coming.

She said: “I’m not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings.

“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”

It comes after Emma Reynolds, Economic Secretary to the Treasury, urged for more money to be invested in the stock market instead of cash.

If you're a basic-rate taxpayer, you can earn £1,000 every tax year in savings interest before you need to pay tax. The threshold is £500 for higher-rate taxpayers, while additional rate taxpayers don't get an allowance at all.

You would start to pay interest on the money earned from your savings once you earn above these thresholds.