Why we need to keep Cash ISAs By Richard Fearon, Leeds Building Society Chief Executive
For anyone who hasn’t seen the news reports, a number of investment companies are pushing the Chancellor and her Economic Secretary to either scrap Cash ISAs completely or reduce the amount people can save in them.
Currently you can put away £20,000 a year into a Cash ISA and all of the interest on that money is then tax-free. This has become increasingly important as interest rates have increased and the personal tax allowance – which hasn’t changed since 2016 – is reached more quickly.
The argument in favour of restricting Cash ISAs goes something like this: people should be encouraged to make more out of their money by putting more of it into riskier funds (stocks and shares go up as well as down, don’t forget) and at the same time help fuel the economy by that money supporting investment in UK companies.
There is clearly some merit in this argument. Those that can afford to risk some of their money, and want to do it, should certainly consider it. Over the long term, stocks and shares traditionally outperform cash returns. Nobody involved in providing Cash ISAs, including Leeds Building Society, would deny this.
But there are counterpoints which need to be considered and which appear to be absent from much of the debate…
Lots of savers don’t want this – we asked our members in January whether they intended to open a Stocks & Shares Isa in 2025 and only 7% did i. The vast majority of Cash ISA savers are fully aware of the potential upside of investments, but are making a conscious choice to ensure their capital is protected, supporting their financial resilience and wellbeing.
Investments will not be suitable for everyone – there are plenty of circumstances where people shouldn’t risk their savings being undermined by short term movements in share prices. For example, people saving up to buy a home in 2 or 3 years’ time, or for many pensioners – an important consideration given that 70% of our Cash ISA customers are 65 or over.
Removing the tax-free wrapper could cost our average saver more than £750 ii per year – if Cash ISA savers opted to move their money into non-ISA cash accounts rather than S&S Isas, those with a typical balance would face an additional tax burden of £750 a year if they’re a higher tax payer who has already used up their personal savings allowance. It is unfair on them to have to pay more, having saved carefully to provide for their future.
It’s naïve at best, or deliberate misinformation at worst, to say money saved in cash ISAs is dormant – we, and all building societies, use it to fuel our mortgage lending. If you reduce that funding, mortgage rates would become more expensive for borrowers. Building societies have a strong track record of being innovative and supporting first time buyers. At a time when the cost of living continues to impact millions of people, the last thing that families and aspirational homeowners need is to have greater pressure on their mortgage bills.
Arguments in favour of growth in some sectors need to consider the wider picture - increased stocks and shares funding may not even be invested in UK companies. Given relative performance, and indeed the added disincentive of UK Stamp Duty Reserve Tax, investors may well choose to invest in other markets through for example US equity trackers. Meanwhile this will come at the cost of impacting the UK mortgage and housing market. The Government is rightly aiming to create 1.5m more homes in the UK, but we need affordable mortgages to help people become homeowners.
This would be bad for mutuals and the diversity of the UK’s financial services sector - before the election, Labour’s growth plan iii committed it to doubling the mutual sector and creating a level playing field within financial services . A change of this nature would drive in precisely the opposite direction, given that mutual building societies account for about 40% of the Cash ISA marketiv.
We will continue to speak up on behalf of our members and savers who would be impacted by this. We support growth and we believe in changing the status quo when it drives better outcomes. But we also believe in the mutual model, consumer choice and fairness. The proposals for changing Cash ISA rules do not deliver on any of those.
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i Leeds Building Society survey of 393 members, December 2024
ii Leeds Building Society calculation based on assessment of customer ISA balances, February 2025, if savings rates equalised in the market across ISA and non-ISA products
iii Financing Growth: Labour’s Plan for Financial Services. Page 10. https://labour.org.uk/wp-content/uploads/2024/01/Financing-Growth.pdf
