The move is part of a UK government strategy to encourage savers to invest in UK-listed companies, shifting capital from the UK’s estimated £300 billion cash pile into the London stock market. While the overall annual tax-free savings limit of £20,000 is set to remain, a new, lower cap is expected to be introduced specifically for cash ISAs.

This would mark the most substantial change to the ISA regime since its inception in 1999. The UK government’s aim is to address the current drought of company flotations and investment in UK equity funds. By making cash ISAs less attractive for shielding large sums from tax, officials hope to create a new stream of investment into London-listed firms.

The proposal has ignited a fierce debate within the financial sector. City firms, including brokers and asset managers, have lobbied in favour of the change, arguing it will stimulate the economy and offer savers better long-term returns through investments. However, building societies and consumer groups have voiced strong opposition. They warn that the policy may not translate into a significant shift into equities, as many people use cash Isas for short-term goals like house deposits or weddings, not as a gateway to stock market investment, Financial Times reports.

Discussions are reportedly ongoing within Whitehall about the precise level for the new cash ISA cap, with figures as low as £4,000 having been previously considered. A Treasury official confirmed the UK government is “looking at options for reforms to ISAs that get the balance right between cash and equities”.

The final details of the plan are expected to be published alongside the chancellor’s speech in a new “financial services growth and competitiveness strategy”. The Financial Conduct Authority’s latest policy on providing “targeted support” to help savers invest is also likely to feature in the announcement.