Martin Lewis issues 'very unpopular' £10,000 ISA change warning

Money-saving expert Martin Lewis has given Good Morning Britain viewers an update on potential changes to one of the nation's favourite saving methods that Chancellor Rachel Reeves is rumoured to be announcing. Cash ISAs, used by 18 million Brits, could see their annual contribution limit slashed.

Lewis's comments come amid swirling rumours that Chancellor Rachel Reeves might include cuts to the yearly tax-free cash ISA allowance in her upcoming Mansion House speech on July 15, reports Birmingham Live.

Government officials are poring over different ISA reform strategies to find the right mix between cash and stocks, with the goal of boosting savers' returns, fostering a culture of retail investment, and propelling economic growth.

The Financial Conduct Authority (FCA) has pointed out before that around seven million UK adults with £10,000 or more in cash savings could be missing out on better returns over time.

During this morning's show (July 9), presenter Susanna Reid said: "The Chancellor is reportedly set to hit save as hard as she prepares to announce a review of the 20,000 pounds cash ISA limit as part of her Mansion House speech next week. Now, more than 18 million people in the UK save in cash ISAs, so. Is she likely to reduce the limit you can save? Talk us through the proposals."

Martin, the personal finance guru behind Money Saving Expert, has shared his thoughts on the current ISA limit of £20,000 per year. He said: "The overall limit, she has said, will stay at £20,000, but the strongly suspected rumour is that means she's going to drop the amount that you can put into cash ISAs, into savings."

He explained that the proposed change is not about increasing tax revenue, but rather encouraging younger people to invest for their future. He said: "The reason for doing this, we're being told is not to raise tax revenue, they're very strong on that, is to try and encourage more young people to invest for their future, which is actually a good thing that they should be doing."

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However, Mr Lewis expressed his concern over the government dictating how people should manage their money. He stated: "My problem is, I think this is a form of push economics, nudge economics, but actually in reality it's just pee people off economics, because most people who've got money in savings aren't going to go 'I'm going to have to start paying tax on some of the interest, I'm going to shove it into a risky-based investment'."

In his view, a superior strategy would be to offer guidance and education to help individuals make well-informed investment choices.

Based on a survey he carried out, many oppose cutting the threshold. He said: "Politically, this is likely to be another very unpopular move. Now the talk was the limit could be cut as low as £4,000, and therefore you would have £16,000 you would put into a stocks and shares ISA.

"I can tell you now it will not be £4,000 pounds. I am hearing rumours, that's the only way I'm going to phrase it, that I suspect if it drops, it'll be down to £10,000, maybe £15,000. type of limit that they're going to, so that which would be disappointing but not disastrous if you ask me.

"You know, I, if, if I were to come out of what I would say if this announcement made at £4,000 pounds, you know, it'd be full raising red flags, this is an absolute nightmare. At £10,000 I'd say this is disappointing, but of course, to be able to save £10,000 a year, you have to be pretty affluent anyway."

Mr Lewis suggests a 'starter investment ISA' for young people. He explained: "So you'd do the same age as a Lifetime ISA, which is under 40s, you'd be able to put 1000 pounds into it per tax year.

"Then for the first couple of years, you would get a 5% boost on top paid jointly by the financial services industry and the state, so that if for £1,000 pounds you put in, you get £10,050 pounds worth of investment, and that gives people some experience and some way to start to get into the market because we need to encourage, as opposed to try and say, oh, you know, the choice between a savings ISA and an investment ISA is like a choice between an Apple and a car."