The UK government had been anticipated to reveal a significant cut to the current £20,000 annual allowance in the Chancellor’s upcoming Mansion House speech. The proposed reduction, with suggestions of a new limit as low as £5,000, was intended to incentivise UK savers to explore stock market investments, which offer the potential for greater returns but carry higher risk.

However, the proposals faced strong opposition from the financial sector. Building societies, in particular, argued that the deposits from cash ISAs are a crucial source of funding for mortgages. They warned that a substantial cut to the savings limit would consequently reduce their capacity to lend to homebuyers.

While the plans have not been entirely abandoned, the Treasury has indicated a need for further consultation with the industry.

Introduced in 1999, Individual Savings Accounts (ISAs) allow individuals to save or invest up to £20,000 each tax year without paying tax on the returns. Over 18 million people in the UK hold a cash ISA, with an estimated £300 billion held in these accounts.

The Chancellor is now expected to use her speech to outline plans for providing more advice and support to consumers, aiming to encourage a greater uptake of stocks and shares. Data from investment firm Aberdeen highlights that UK consumers typically hold 15% of their assets in cash compared to just 8% in stocks.

A Treasury spokesperson reiterated the government’s ambition “to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy”.