The Chancellor has confirmed that the £20,000 ISA allowance will remain in place amid speculation that the Government could reform the way ISAs work.

In an interview with the BBC earlier this week, Rachel Reeves did not rule out the idea of cutting the cash ISA allowance while retaining the overall £20,000 limit, however.

In her Spring Statement in March, the Chancellor held off from making changes to ISAs but indicated that plans to tweak allowances were on the agenda. This was part of an aim to “get more people investing”, she told MPs.

The accompanying Spring Statement document released after Reeves’ speech to the House of Commons indicated that the Government wants to get the “balance right” between cash and equities in ISAs, as part of efforts to push through a shift in retail investment.

However, not all ISA providers believe that lowering the cash ISA allowance would achieve the Government’s objective of shifting cash ISA money into UK equities. Investment platform, AJ Bell, believes this would instead only introduce complexity and cut tax advantages for cash savers.

AJ Bell has long advocated simplifying the ISA landscape to boost retail investing and support UK companies in the process.

“Reeves and the Treasury are still wrestling with what ISA reform will look like in practice,” commented head of public policy at AJ Bell, Rachel Vahey. “It’s good news she has committed to keeping the overall ISA limit of £20,000 – ISAs are one of the most popular ways for Brits to save and invest for their future and cutting that limit would have hit many people hard.

“But this commitment doesn’t necessarily mean the idea of a lower allowance for only cash ISAs is off the table. The Treasury will be looking at a range of solutions in their quest to get a better balance between cash and equities in ISAs.

“A lower limit for just cash ISAs, though, is likely to be a lose-lose for everyone. It will fail to encourage the behaviour outcome the Treasury is looking for.”

Previous research by AJ Bell has indicated that only one in five cash ISA holders would migrate to investing in the UK stock market should the cash ISA allowance be reduced or abolished.

The investment platform’s findings showed that the majority (51%) would move the money in a taxable savings account and a further 24% indicated they would opt for National Savings & Investments (NS&I) products, such as premium bonds.

“A different cash ISA limit would introduce more complexity into an already complex ISA landscape, potentially cutting off transfers between stocks and shares and cash products,” Vahey added.

“Simplifying the current ISA framework by merging cash and stocks and shares ISAs to create a single main ISA product would remove much of the friction of the current framework, meaning Brits can change their ISA investment profile simply and easily, dialing up their investment exposure as their life evolves and their saving horizon and life goals change.

“Simplification, together with the introduction of targeted support – provider-led guidance to help people make these tough decisions – could truly provide the foundation for the retail investing revolution Reeves desires.”

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