Rachel Reeves’s plans to curb cash ISA limits with the aim of fuelling a wave of stock market investing “are doomed to fail”, the boss of one of Britain’s biggest retail investment platforms has warned.

Sky News has learnt that Michael Summersgill, chief executive of AJ Bell, which has more than £100bn of client assets under administration, wrote to the chancellor this week to intensify his criticism of the reforms.

In an excoriating letter, seen by Sky News, Mr Summersgill expressed concern not only at the plan to cut the cash ISA allowance from £20,000 to £12,000 in 2027, but also at the “lack of proper process in implementing the planned changes”.

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“It is my strongly held view these unwieldy proposals are doomed to fail in their aim of encouraging more people to invest for the long term and represent a significant backward step for a product whose success has been largely down to its relative simplicity,” Mr Summersgill wrote.

“Rushing to implement these changes, which represent a material intervention in the market with wide-ranging consequences, without a proper consultation or any clear evidence they will incentivise long-term investing represents the worst kind of policymaking.”

The forthright nature of the AJ Bell chief’s criticism underlines the deep misgivings in Britain’s investment industry about the implications of the Treasury’s plans.

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Sky News revealed earlier this week that a swathe of ISA providers had met officials from the Treasury and HM Revenue and Customs to outline the details of their concerns.

The government is drawing up detailed anti-circumvention rules including banning transfers from stocks and shares and Innovative Finance ISAs to cash ISAs; the use of tests to determine whether an investment is eligible to be held in a stocks and shares ISA or is ‘cash-like’; and charges on any interest paid on cash held in a stocks and shares or Innovative Finance ISA.


Tax-free cash ISA allowance cut to £12,000

However, the investment industry has been vocal in warning that the rule changes will increase complexity and penalise savers who are focused on de-risking their portfolios before they turn 65.

There are also concerns that a more robust approach to taxing cash balances held in stocks and shares ISAs would severely damage the image of ISAs as a tax-free investment option.

In his letter to Ms Reeves, Mr Summersgill, whose company serves more than 640,000 customers, said the fact that the reforms were being pushed through in relation to a product at the centre of plans for a multimillion pound industry-funded campaign to promote retail investing was “all the more troubling”.

A number of firms, including AJ Bell, have already pulled out of participating in that campaign over its costs and coordination.

Mr Summersgill said there was no evidence that the cut to cash ISA allowances would materially boost retail investment, adding that a survey conducted by AJ Bell found “the vast majority would simply opt for cash alternatives, such as NS&I bonds, or save in a taxable cash account”.

“As we warned Treasury officials on multiple occasions ahead of the Budget, this will harden the border between Cash ISAs and Stocks and Shares ISAs, making it less likely existing excess funds held in Cash ISAs will shift to long-term investing through Stocks and Shares ISAs.”

“Given there are 3 million people with at least £20,000 invested in Cash ISAs and nothing invested in Stocks and Shares ISAs, this represents a missed opportunity worth at least £60 billion,” Mr Summersgill warned.

“In the short term, people will rationally flock to Cash ISAs – the opposite of the policy intent – ahead of the allowance reduction in April 2027.”

He also lambasted the decision to exempt those aged 65 and over from the changes, saying it was “a baffling age to choose” given that it does not correspond with the state pension age.

“As if this complexity wasn’t enough, the anti-avoidance measures HMRC will be required to draw up to accompany these reforms risk further undermining the attractiveness of ISAs,” he wrote.

“The proposed ban on transfers restricts choice and flexibility, two key benefits of ISAs, but more worrying is the intention to apply a tax charge to cash held in Stocks and Shares ISAs.

“The simple fact is that cash passes through Stocks and Shares ISAs all the time.

“Contributions are made in cash, dividends are received in cash, fees are paid in cash, and risk-based assets have to be sold to create the cash for withdrawals.

“In other words, the government intends to punish retail investors for using the Stocks and Shares ISA the way it was designed to be used by levying tax.”

He warned the measures “could potentially mean Stocks and Shares ISAs which allow people to hold cash can no longer be marketed as ‘tax-free’, weakening the appeal of the most popular investment account in the UK market”.

Mr Summersgill urged the chancellor to “adopt a light touch approach to anti-avoidance, at least until the reforms have bedded in and there is an evidence basis upon which to formulate any necessary interventions”.

“Any cash held in a Stocks and Shares ISA for investment purposes should remain exempt from any charge, with HMRC reserving the right to apply a charge where this is not deemed the case,” he wrote.

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The AJ Bell chief added that plans to replace the Lifetime ISA with a savings product targeting first-time buyers only risked adding “even more complexity to the ISA landscape”.

And he said the nature of the Treasury’s consultation on the sweep of ISA reforms “with only a few months to work with HMRC on the nuts and bolts means unintended consequences are far more likely”.

“Given the government’s plans to cut the Cash ISA allowance were briefed to the media ahead of your Mansion House statement in July last year, there has been more than enough time to consult properly ahead of an April 2027 implementation,” he wrote.

“The fact this hasn’t happened represents a failure to conduct even the most basic due diligence before making a substantial policy intervention.”

In the 2023-24 tax year, savers ploughed a record £103bn into ISAs, with almost exactly two-thirds of that – £70bn – invested in cash ISAs.

Earlier this week, a government spokesperson said: “To encourage greater investment in stocks and shares, we’re developing changes to ISA rules which will prevent circumvention of the new lower cash ISA limit.

“We’re already working closely with industry and will publish clear guidance before the changes come into effect.”