Conservatives call on Labour to rule out £5 billion Savings Tax

The Conservatives are today [22 October] calling on Labour to rule out plans for a new “Savings Tax”, following reports that Rachel Reeves is considering cutting the tax-free ISA allowance.   

The Labour Chancellor is considering slashing tax relief on ISAs, claiming this will incentivise more people to invest in the stock market instead. A leaked report from experts at Morgan Stanley assessing potential Budget measures has estimated such a change could raise around £5 billion a year for the Treasury, at the expense of millions of ordinary savers.   

Building societies have also sounded the alarm over the potential impacts, with many reliant on cash ISA deposits for their mortgage lending.   

The Chancellor recently admitted she is planning to raise taxes at the Budget, despite promising last year that she would not be coming back with more tax rises after hiking taxes by £40bn in her first budget.  

Responding to the leaked Morgan Stanley report, Shadow Chancellor, Sir Mel Stride said: “Any move to cap ISAs would punish people for doing the right thing: saving for a home, for their family, or for a secure retirement.  

“The ISA system works well - helping millions of people save and invest for their future without fear of unfair taxation.       

“Labour's reported plan to slash the ISA allowance is nothing short of a new savings tax. It would hit ordinary people, undermine confidence, and send a terrible message: that under Labour, saving responsibly will be penalised.     

“Rachel Reeves must urgently rule out this fresh tax raid on savers.”   

Sir Mel added: “There's a better way. If Labour cut government spending - including the welfare bill - there would be no need for any damaging tax hikes.”   

ENDS 

Notes to Editors 

For more information: https://what-labour-said.webflow.io/stop-the-savings-tax 

Before the general election, Labour pledged to review the ISA landscape: 

• Labour promised to ‘simplify the Individual Savings Account (ISA) landscape'. ‘Labour will look to deliver a modern ‘Tell Sid' campaign for retail ownership to highlight the value of British people supporting British businesses. Labour will also look to simplify the Individual Savings Accounts (ISA) landscape to make it as easy as possible for people to feel the benefits of saving and investing their money, including through increased utilisation of stocks and shares ISAs' (The Labour Party, Financing Growth, 30 January 2024, link).

At her Mansion House speech, Rachel Reeves confirmed that Labour are considering ‘further changes to ISAs': 

• Rachel Reeves hinted that changes are coming to the ISA landscape. REEVES: ‘I recognise the potential for ISA reform to improve returns for savers and access capital for UK businesses. I have confirmed that Long-Term Asset Funds can be included in stocks and shares ISAs allowing long-term ISA investors to benefit from this innovative product. And I will continue to consider further changes to ISAs engaging widely in the coming months and recognising that despite the differing views on the right approach we are united in wanting better outcomes for both UK savers and for the UK economy' (HM Treasury, Rachel Reeves Mansion House 2025 speech, 15 July 2025, link).

Building societies have sounded the alarm over the potential impacts of cutting the ISA allowance:

• The Building Societies Association warned that lowering the ISA cap could lead to higher mortgage costs. In an open letter to Rachel Reeves, the Building Societies Association said: ‘Restricting cash Isas won't encourage people to invest, as it won't suddenly change their appetite to take on risk. 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. This would undermine efforts to stimulate economic growth, including the Government's commitment to delivering 1.5 million new homes' (The Telegraph, 7 July 2025, link).

• Sarah Coles, head of personal finance at Hargreaves Lansdown, warned that lowering the ISA cap could reduce the number of retail investors. COLES: ‘This is an issue which requires a carrot, not a stick, approach. We know through extensive research that the barriers to investing are behavioural, so it's through encouragement and increased confidence that we will increase the number of retail investors' (Business Matters, 1 July 2025, link). 

• Michael Summergill, chief executive of AJ Bell, warned that lowering the ISA cap could undermine trust in the investment industry. Michael Summersgill told the Financial Times that he was ‘fundamentally opposed' to reducing the amount savers could hold in cash ISAs as it would ‘risk undermining people's trust' in the industry and ‘would not have the desired effect of getting people investing' (The Financial Times, 23 May 2025, link).

• The National Institute of Economic and Social Research warned reducing the ISA allowance would ‘disincentivise savings, implying lower investment or a worsening of the current account'. ‘But reducing the tax-free cash ISA allowance from £20,000 to £4,000 would raise less than £1 billion per year and both this policy and that of increasing the rate of CGT would disincentivise savings, implying lower investment or a worsening of the current account, or both' (NIESR, UK Economic Outlook, 6 August 2025, archived).