Budget 2026: What it means for your savings

Each year, we speak to Lord Philip Hammond, former Chancellor of the Exchequer, about what the Budget means for savers as well as businesses and investors.

This year’s Budget brought fewer changes than some expected. But behind the headlines, there are a few decisions worth understanding – particularly if you have savings outside an ISA.

The ISA cut that didn’t happen

A reduction in the cash ISA allowance had been announced at the previous Budget. This year, the government reversed that decision, keeping the annual allowance at £20,000, regardless of age. Lord Hammond suggested the decision reflects a bigger challenge. The government wants more people to invest in stocks and shares rather than keep their money in cash, but reducing the cash ISA allowance could encourage people to move their savings elsewhere instead.

For now, the allowance stays where it is. The longer-term direction remains less clear.

Savings tax is rising, more quietly

One change that attracted less attention was a further two-percentage-point increase in the tax surcharge on savings income, following an equivalent rise the previous year. Together, that amounts to a four-percentage-point increase over two Budgets.

If you earn interest on savings held outside an ISA, this could affect how much of that interest you keep after tax, depending on your circumstances.

It’s an important distinction: while the ISA allowance remains unchanged, the tax treatment of savings outside an ISA has become less favourable.

Pension tax-free lump sum: unchanged

There had also been speculation about a reduction in the amount people can take tax-free from their pension. That change didn’t happen. The existing rules remain in place.

For anyone approaching retirement, it’s useful to know what was left untouched, rather than mistake pre-Budget speculation for a policy change.

Is the government nudging people towards investing?

Lord Hammond’s broader point was about savings habits, not just tax rules. He highlighted a difference between the UK and US, where owning shares is a more familiar part of everyday financial life:

“The UK doesn’t have the same culture of share ownership as the US. Even among younger, well-educated people, investing in property or other assets is often more familiar than owning shares.”

His observation helps explain why changing the balance between cash savings and investing is unlikely to happen through one Budget announcement.

Building greater confidence in investing could take time, alongside changes to incentives and products. And for individual savers, the right balance between cash and investments will always depend on what they’re saving for, when they need the money and how much risk they’re comfortable taking.

What should savers take away?

• Your £20,000 ISA allowance remains unchanged. The proposed cut was reversed, although future Budgets could revisit the rules.
• Tax on interest from cash savings held outside ISAs is increasing. That’s worth understanding if you hold substantial cash savings outside tax-efficient accounts. It doesn’t affect how dividends or investment gains are taxed.
• The pension tax-free lump sum rules remain unchanged. Speculation ahead of the Budget did not become policy.
• There’s no need to rush into changes. But this could be a useful opportunity to review where your savings are held and whether that still suits your plans.

Where this leaves you?

With the £20,000 ISA allowance staying in place, it’s worth considering whether you’re making the most of your tax-free savings allowance.

If flexibility matters, our Easy Access Cash ISA lets you earn tax-free interest with next-day access and no withdrawal penalties. If you’re happy to put money aside for longer, our Fixed Rate Cash ISA offers a guaranteed interest rate over 12, 24 or 36 months. And if you’re saving for a child, you can open our Junior Cash ISA from just £1.