Britons can "breathe a sigh of relief" as Chancellor Rachel Reeves did not launch a stealth tax raid on savings accounts during her Mansion House speech, analysts claim.
The Chancellor is understood to has shelved controversial proposals to reduce the tax-free allowance for cash ISAs after facing mounting opposition and a notable increase in new account applications.
The Treasury's retreat from the planned reforms comes as building societies have reported a surge in customers opening new cash ISA accounts in recent weeks.
This policy reversal was more or less confirmed during the Chancellor's Mansion House speech, which saw Reeves pledge to slash regulations for the financial services sector.
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|Rachel Reeves avoided announcing a tax raid on savers during her Mansion House speech
Upon reports of a potential tax raid on ISAs, financial institutions warned the changes would penalise ordinary households.
The abandoned proposals had aimed to lower the annual tax-free savings limit for cash ISAs, which currently stands at £20,000, to around £4,000.
Internal divisions within government have played a significant role in halting the cash ISA reforms, with sources indicating "differing views" emerged during policy discussions.
The Treasury's decision to pause the proposals also followed an extended consultation period with the financial sector, which raised concerns about the potential impact on savers.
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GETTY | ISAs are useful tools for those looking save and avoid paying taxFinancial institutions had warned during the consultation process that reducing the cash ISA allowance could discourage saving at a time when many households are rebuilding their financial buffers.
The policy freeze represents a notable shift from the Government's initial position, which had sought to encourage more investment in stocks and shares ISAs rather than cash savings.
Industry leaders have welcomed the Chancellor's decision to abandon the cash ISA reforms after tonight's Mansion House addresss.
Carol Knight, the chief executive of The Investing and Saving Alliance, said: "Savers across the UK can breathe a sigh of relief that the Chancellor has not proceeded with reducing the Cash ISA allowance."
She added: "Rather than cutting the tax benefit of Cash ISAs to try and push people into investing in stocks and shares, it's right that the Government appears to be heeding calls to encourage people to invest with better support, information and guidance."
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COVENTRY BUILDING SOCIETY | Coventry Building Society has previously warned against the impact of a tax raid on savings
Coventry Building Society previously broke down the likely damage to the finances of British savers if an ISA tax raid was given the green light.
Jeremy Cox, the head of Strategy at Coventry Building Society, said: "Savers are facing a double hit. First, frozen tax thresholds are quietly dragging millions into higher tax brackets. Now, the potential cut to the cash ISA limit risks punishing those who simply do the right thing by putting money aside.
“For many - especially the half a million people expected to move into higher-rate tax next year - the blow will be even harder. With their Personal Savings Allowance slashed in half, they’ll either pay more tax on their savings or be pushed toward riskier investments they may not fully understand.
"To make matters worse, interest earned outside an ISA counts toward total income — meaning even modest savings can pull people into a higher tax band without them even realising."