More than 50 building societies and financial firms have signed an open letter to the Chancellor, urging her to save cash ISAs and maintain the current £20,000 limit.
It comes amid reports that Rachel Reeves will slash the annual tax-free cash ISA allowance in her upcoming Mansion House Speech, as part of a government drive to get people to invest their money.
Signatories include Nationwide, Skipton Group, Yorkshire Building Society and Hargreaves Lansdown.
Describing cash ISAs as a “cornerstone of personal savings” for millions of people, they warned that cutting the limit would send a “discouraging” message to savers and undermine the product.
The industry stressed that barriers to investing are primarily behavioural and building confidence and awareness is far more important.
“It would make the whole ISA regime more complex and make it harder for people to transfer money between cash and investments. Restricting cash ISAs won’t encourage people to invest, as it won’t suddenly change their appetite to take on risk,” they stated in the letter.
Figures from HM Revenue and Customs show that over 18 million people have a cash ISA and almost half (47%) of cash ISAs are held by people with incomes of less than £20,000 a year, with an average savings balance of just under £13,400.
Beyond individual savers, the industry has argued that cash ISAs are an important source of funding for banks, building societies, credit unions and other providers which use the deposits to fund loans to households and businesses, helping to keep these both affordable and accessible.
The letter said: “Any significant reductions to the cash ISA limits would make this funding more scarce which could have the knock-on effect of making loans to households and businesses more expensive and harder to come by.”
Robin Fieth, chief executive of the Building Societies Association, said: “Cash ISAs are used for a wide range of purposes; from saving for a first home to managing finances in retirement. These are not idle funds; they serve real, practical needs for both savers and the building societies, banks and other providers that receive the funds and use them to support mortgage and other lending.
“Simply changing ISA limits is unlikely to encourage people to invest but it will hurt people who are responsibly saving for short-term goals, where investing may not be appropriate.”
In addition to urging the Chancellor to maintain the current ISA limit, signatories also called for a consumer awareness and information campaign to educate people about the benefits of investing alongside maintaining strong support for saving.
