Rachel Reeves may force ISA savers to invest in UK shares even if they don't want to

Reeves is already considering a radical plan to slash the annual Cash ISA allowance. Next, she may target the Stocks and Shares ISA too.

Reports that she may , who value them as a safe, tax-efficient home for their money.

Pensioners in particular rely on Cash ISAs to shelter their savings from . So the prospect of a major cut has come as a shock.

We don't yet know if Reeves will act. But if she does, the change could come next April. Experts are already urging savers to use this year's full Cash ISA allowance while they still can.

, to encourage long-term investment and help grow the UK economy.

There's a problem though. Most ISA investors don't buy British shares. In 2023, they put just 11.5% of their portfolios into the FTSE.

Pension funds have also abandoned our own stock market.

FTSE shares now flounder, with valuations lagging far behind the US. Reeves is being urged to change that - by force.

City investment bank Peel Hunt has called for Reeves to slash the Cash ISA allowance from £20,000 to £5,000.

Under its plan, the Stocks and Shares ISA would remain at £20,000, but investors would have to put at least half their money into UK-listed equities.

ISA tax breaks cost the Treasury £9.4 billion a year, which Peel Hunt's head of research Charles Hall called a "very poorly directed subsidy". "It doesn't make sense, particularly when resources are limited."

He said it would be fairer for Reeves to ensure tax relief only supports investments that actually benefit the UK.

Jason Hollands, managing director at investment platform Bestinvest, said Reeves might be tempted as the UK stock market is losing firms. "Channelling ISA money into UK assets could be seen as a way to reboot the FTSE."

But he said Stocks and Shares ISA investors will hate it. "Any move that reduces flexibility and limits global diversification would be a retrograde step."

There is a precedent though.

In the 1990s, Personal Equity Plans (PEPs), the forerunner of ISAs, were mostly restricted to UK shares. But Hollands said it's different today. "British investors overwhelmingly focus overseas - especially on the US."

UK-focused ISA funds barely register among the top 10 sales, Interactive Investor figures show. Global funds dominate, led by US trackers such as the Vanguard S&P 500 UCITS ETF.

In a world where British investors have gone global, telling Stocks and Shares ISA savers where to invest their money will not go down well.

Yet it's the logical next step. Why cut the Cash ISA if savers simply switch their money into US shares, rather than backing UK businesses?

In fact, it would be weird if Reeves didn't do it. As it stands, the Treasury is indirectly subsidising foreign firms. That money will work harder at home. Stocks and Shares ISA investors won't like it though.