Chancellor Rachel Reeves has been accused of “punishing” savers over a planned 22 per cent tax hit on cash held in stocks and shares ISAs.
Since Labour Party returned to power in July 2024, Reeves has faced growing scrutiny over her time at the Treasury, with major shake-ups to ISA rules drawing criticism.
The proposed changes include cutting the tax-free allowance for cash ISAs from £20,000 to £12,000 for people under 65, alongside a new 22 per cent levy on money held in stocks and shares ISAs.
The reforms are due to take effect in April 2027, but both measures have already sparked backlash from City figures and Labour MPs.
Speaking to The Telegraph, Labour Treasury select committee chair Meg Hillier said she was worried about the direction of the policy.
She said: “I’m concerned this is damaging the ISA brand. It used to be simple — people understood that once money went in, there was no tax within that wrapper.”
Dame Hillier added that the reforms were “weakening that wrapper and creating unnecessary complexity.”
The overhaul goes beyond the tax charge itself.
Savers will no longer be able to move funds from stocks and shares ISAs into cash ISAs, while those under 65 will also see their annual cash allowance cut by 40 per cent.
AJ Bell public policy director Tom Selby described the reforms as “a dog’s breakfast,” arguing that ISAs had always appealed because they were simple and easy to understand.
He said: “Dame Meg is absolutely right. These reforms add needless complexity at a time when investors want simplicity, while drawing a harder line between short-term cash savings and long-term investing.”
Selby accused ministers of trying to “punish” people who do not use ISAs in the preferred way, and urged any future government to scrap what he called poorly designed and unnecessary reforms.
The Treasury has defended the changes, with a spokesperson arguing that keeping cash long-term in a non-cash ISA to earn tax-free interest is not genuine investing.
Officials insist the reforms will encourage savers to put money into investments that can grow their wealth, claiming support from Nationwide Building Society and the Building Societies Association.
Despite criticism aimed at Reeves, analysts note that taxing cash within ISAs is not entirely new.
Before former Conservative Chancellor George Osborne introduced simplification measures in 2014, cash held within stocks and shares ISAs was already subject to a 20 per cent levy.
