Revealed: Labour’s £975m stealth tax blow for savers

Isa allowance freeze will push investors to move cash out of tax-free product

Savers will suffer a £975m stealth tax raid over the next six years after Rachel Reeves froze Isa allowances until 2030.
The Chancellor’s decision to keep the annual deposit limit at £20,000 means the allowance will have remained unchanged for 13 years by the end of the decade.
The deep freeze is forecast to raise almost £1bn for the Treasury as an increasing number of savers are forced to keep money outside of Isas, which are tax-free.
In 2029-30 alone, the policy is expected to bring in £605m as more savers pay tax on their interest. In the three preceding years, it will raise £370m.
The last time the Isa allowance increased was back in April 2017, when George Osborne raised the adult Isa limit from £15,000 to £20,000.
Had the annual ceiling been uprated in line with inflation, it would now stand just shy of £26,000.
Come April 2030, the inflation-adjusted figure would rise to £29,500, according to calculations by Interactive Investor.
Therefore, Labour’s extension to the frozen limit is effectively a stealth raid blocking savers from shielding more of their fortunes in Isas.
Myron Jobson, of Interactive Investor, said: “Without adjusting for inflation, the frozen allowance leads to a de facto reduction in its value.
“Inflation reduces the purchasing power of money over time, so a fixed Isa allowance allows you to save less in real terms each year”.
Allowances for all Isa types will be kept at their current levels, with lifetime Isas staying at £4,000 and junior Isas remaining at £9,000.
Sarah Coles, of Hargreaves Lansdown, said: “Providing certainty over allowances until 2030 provides very welcome stability to this cornerstone of people’s finances
“The downside of this certainty is that over time, the allowance will continue to drop in real terms, and become less valuable.”
Only a minority of savers plough the maximum amount into Isas each year. The average amount deposited by an adult last year was £5,797.
There had been fears that Ms Reeves would cut the amount that can be accumulated in an Isa over a lifetime. She previously called for a £500,000 limit and wrote in a newspaper column for The Independent in 2016 that the Isa system needed “overhauling”.
However, no major reforms were announced in the Budget and a lifetime cap will not be brought in. The only change was the expected scrapping of Jeremy Hunt’s planned Great British Isa.
Isas were introduced in 1999 to replace personal equity plans (Peps), which had been introduced by then-chancellor Nigel Lawson. The allowance for investment Isas was originally £7,000, and for cash Isas it was £3,000. These limits remained in place for nine years before multiple changes were introduced between 2008 and 2017.
The tax-free wrappers are a popular savings product, with over half of the adult population making use of them. Official figures show the value of all adult Isas in the UK is £726bn.
Ms Reeves’s decision to freeze the annual deposit limits until 2030 marks a record period of time for Isa allowances remaining unchanged.
Budget papers show that the Treasury will earn £15m in 2026-27, £90m in 2027-28, £265m in 2028-29 and £605m in 2029-30 thanks to the allowance freeze.
A Treasury spokesman said: “The average subscription is around £6,000 across all ISA types – making the £20,000 limit appropriate for the vast majority of savers.”