Rachel Reeves appears to have U-turned on a reported plan to reduce the £20,000 tax free cash ISA allowance. The Chancellor was widely expected to announce a cut during a speech at Mansion House on July 15. But a fierce backlash from building societies and consumer champions such as Martin Lewis has forced Ms Reeves into a rethink, according to reports.

Instead of announcing a cut, Ms Reeves is now expected to promise extra support and advice to encourage Brits to invest in stocks and shares. Under current rules, savers can shield no more than £20,000 per year from tax in individual savings accounts, which can be saved as cash as well as being invested in stocks and shares.

Ms Reeves is understood to have wanted reforms to push more of Brits’ hard-earned money towards stocks and shares. That was welcome news to brokers and investment banks, but raised concerns with buildling societies, which use ISA savings to make loans.

For first-time savers, lower earners, or those approaching or in retirement, cash ISA savings could be a safer, more appropriate option.

Investments may potentially outperform cash savings in the longer term, but savers need to understand the risks involved as the value of investments can go down as well as up.

The Financial Times reports that ministers want more time to consult industry. Government officials cited by the same publication said there are “differing views” as to how to proceed with reforms.

A Treasury official told the FT that ISA reform is still an option and the ambition is to make sure people’s savings deliver the best returns and boost investment in Britain’s economy.

Sarah Coles, Head of Personal Finance at broker Hargreaves Lansdown, welcomed the pause. She added: “This decision makes perfect sense, because it should give the Government the chance to see the impact of the other steps it’s taking to boost investment that could really be gamechangers for retail investment.

“Changing the boundary on advice and guidance will be truly transformational. Once companies can offer targeted support to their clients, it will help more people build their understanding and confidence, so they choose to branch out into investment because they know it’s right for them – rather than feeling pushed into it to retain their ISA allowance.”

Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: “If reports the Chancellor will not announce a cut to the annual cash ISA allowance in her Mansion House speech next week are true, this is positive news for savers and for lenders.

“We’ve consistently made the case, alongside others across the mutual and building society sector, for maintaining the full allowance, and welcome any decision to consult further with industry rather than rush through damaging reform that would disincentivise saving.”

Michael Healy, UK Managing Director of IG, said if reports the Chancellor will climb down on cash ISA reform are true, then this was a big win for the defenders of a broken system.

He said £300billion is currently “stagnating” in cash ISAs, earning “paltry” returns and doing nothing for the British economy.

Mr Healy pointed to IG analysis as showing that since cash ISAs were introduced in 1999, real returns from UK shares have been seven times greater.

He said: “Building societies and pro-cash ISA campaigners are defending a damaging status quo, depriving savers of any real long-term wealth creation and UK businesses of vital capital.

“It seems deeply wrong that we expect ordinary savers to subsidise building societies with cheap deposits, all under the guise of prudence.

“Cash ISAs are often positioned as the safe, sensible option for most people – but that message is holding back a generation of savers from building real, lasting wealth.”

Mr Healy added: “Instead of shielding outdated products, the Chancellor should be ripping up the cash ISA and consigning it to history.”