John Healey has abandoned his predecessor Rachel Reeves' 'car crash' plans to cut the cash Isa allowance in his first Budget this afternoon.

In a victory for This Is Money and the Daily Mail's Hands off our cash Isas campaign, the Chancellor scrapped plans to slash the allowance from £20,000 to £12,000 for under-65s from next April.

A fortnight ago, we called on the Chancellor to stop the cash Isa raid before it was too late, as the poorly thought-out policy from Reeves threatened to sabotage Britain's simplest and best-loved saving and investing product.

Reeves claimed her cut would encourage more investment into British companies but it was met with horror by industry experts when it was announced last autumn. 

Experts from investment platforms, banks and building societies had warned the former Chancellor that a two-tier Isa allowance would backfire and take savers and investors back to an inferior system axed in 2014.

Healey says it is better to axe the cut and educate people about investing in stocks and shares to generate higher returns than to cut tax breaks.

However, he has mounted a sneaky tax raid on savers at the Budget. 

From April 2027, they will pay an extra 4 per cent in income tax on money they receive as savings interest above their personal allowance.

Savers can choose to put their £20,000 annual allowance into either cash or stocks and shares Isa, or a mix of both.  

Since 2014, Isa holders have been trusted to use their allowance in the way that suits them best. Prior to that the cash Isa limit was capped at half the overall allowance.

Under Reeves' plans, under-65s would only have been able to put £12,000 of their allowance into cash Isas – and would be forbidden from moving existing stocks and shares holdings in a cash Isa.

The policy created a last-minute rush into cash Isas at the beginning of the tax year.

A fortnight ago, we revealed findings from platform Trading 212 shared exclusively with This is Money that showed cutting the cash Isa limit could do the exact opposite of what was intended – as savers could be hindered rather than helped to invest.

Trading 212 frequently offers some of the best cash Isa rates and so draws in hundreds of thousands of savers.

Our pick of the five best cash Isas, from easy access to fixed rates 

More than 300,000 of those cash Isa savers have subsequently taken the leap and started to invest for the first time, Trading 212 revealed. 

It said this group now hold more wealth in stocks and shares Isas and general investment accounts than they do in their original cash Isas.

Tom Selby, director of public policy at AJ Bell, said: 'Rachel Reeves' Isa reforms were a car crash, lamented by most of the retail investment industry, who criticised the complexity they would add for little consumer benefit, and building societies, who warned they would increase mortgage costs.

'Given the Prime Minister's main focus is on easing cost-of-living pressures, we aren't surprised the cash Isa cut has been unceremoniously ditched.'

City firms had lobbied Reeves to scale back the tax breaks on cash Isas to boost investment in the flagging UK stock market. 

A lower allowance of between £4,000 and £10,000 had been floated, before the £12,000 limit was confirmed last year. 

The reforms also introduced measures designed to stop savers from getting around the lower cash limit by holding large cash balances within stocks and shares Isas. 

Interest earned on cash held in an investment Isa was set to be charged at 22 per cent.

Selby added: 'While the central aim of encouraging more people to invest for the long-term was the right one, the route Healey's predecessor chose to achieve this was painfully convoluted, hardening the border between short-term saving and long-term investing and adding overwhelming complexity – not to mention a tax charge – into the system in the process,' said Selby.

> How Isas work: Your essential guide to tax-free saving and investing 

Winston Ruddick, senior financial planner at Broadstone said: 'Cash Isas are a simple, accessible and widely understood savings product, often providing a first step towards building longer-term savings habits and financial security. 

'They play a vital role in financial planning, particularly for those with shorter-term savings goals or a lower appetite for risk.'

HMRC's own analysis found that cutting the cash Isa limit would do little to improve the economy but have a 'significant' impact on Isa managers such as banks and investment platforms.

Some investment industry figures who had argued for a cut were less pleased with the Government's U-turn.

'The Chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy,' said Michael Healey, chief executive of IG Consumer. 

'At a time when Britain desperately needs growth, protecting tax incentives that encourage people to sit on cash rather than invest is a deeply misguided decision.'

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