Chancellor Rachel Reeves has temporarily shelved proposals to reduce the annual savings limit on cash ISAs, following strong opposition from banks, building societies, and consumer advocacy groups.

Originally, Reeves was expected to unveil the changes in her Mansion House speech on Tuesday, with reports suggesting a significant reduction in the £20,000 annual tax-free savings limit—potentially slashing it to as low as £5,000. The move was intended to nudge savers towards riskier investments in stocks and shares, which offer the potential for higher returns but come with increased volatility.

However, financial institutions pushed back hard, warning that cash ISA deposits play a crucial role in funding mortgage lending. Reducing the allowance, they argued, could limit their ability to support aspiring homeowners and undermine financial stability.

While the proposal hasn’t been permanently withdrawn, Treasury sources say the government will now consult more widely with the financial industry before deciding on the final form of any reforms. The aim is to strike a balance between encouraging greater investment in UK equities and preserving the safety and accessibility of cash savings for millions of Britons.

Under current rules, UK savers can place up to £20,000 each tax year into ISAs—divided between cash and stocks and shares options—with all returns shielded from tax. Since their introduction in 1999, ISAs have grown in popularity, particularly the cash version, which now holds around £300 billion across more than 18 million accounts.

Matthew Carter, head of savings and mortgages at Coventry Building Society, welcomed the government’s reconsideration. “Millions of savers will be able to breathe a sigh of relief,” he said. Carter emphasized that while encouraging investment in UK equities is a positive goal, forcing savers to take on more risk—especially those nearing retirement or saving for major life milestones like home ownership—would be counterproductive.

Despite pausing the ISA reform, Reeves is still expected to use her Mansion House address to lay out measures aimed at improving financial literacy and offering more support for consumers interested in investing in stocks and shares.

Currently, UK consumers remain heavily tilted toward cash savings. According to figures from Aberdeen, British households typically keep 15% of their assets in cash and just 8% in stocks. This contrasts with the U.S., where only 10% of assets are held in cash and 33% in equities, and France, where the split is roughly equal at 13% each.

As the government grapples with sluggish economic growth—latest GDP figures show a 0.1% contraction in May—decisions about tax policy and savings reform are under increasing scrutiny. A Treasury spokesperson reaffirmed the government’s broader goal: “Our ambition is to ensure people’s hard-earned savings are delivering the best returns and driving more investment into the UK economy.”

For now, the cash ISA limit remains unchanged—but the debate over its future is far from over.