Rachel Reeves is facing calls to overhaul the nation’s favourite savings product with plans that could see the amount people can put into cash ISAs each year slashed to just £10,000.

In a move likely to enrage savers, a consultation on reforming ISAs is expected to be unveiled in the Chancellor’s Mansion House speech next month. One of the most controversial proposals would see any tax-free savings above £10,000 forced into stocks and shares rather than cash.

Currently, Britons can save up to £20,000 a year across all types of ISAs – including cash ISAs, stocks and shares ISAs, Lifetime ISAs, and Innovative Finance ISAs. There is no separate cap on the cash portion, meaning the full £20,000 can currently be held in cash if preferred.

But under proposals floated by City think tank New Financial, which has strong links with the Treasury, that freedom could be axed.

Instead, cash contributions may be limited to £10,000, with anything above that required to be invested – either in funds or UK-listed shares – in order to qualify for tax-free status.

The idea is that this would actually bring higher returns for investors while boosting investment in British companies by billions of pounds. However, critics argue it would be wrong to restrict the savings options of Brits in this way.

One option under review would even make UK equities the only eligible investment for sums over £10,000, as part of a bid to boost domestic markets. As a sweetener, ministers are also said to be considering scrapping stamp duty on UK shares held in ISAs, or abolishing the levy altogether.

While the £20,000 overall ISA limit would remain untouched, critics say the changes would represent a dramatic shift in the way ordinary savers are encouraged to manage their money.

The Treasury has already hinted at such a shake-up. In its Spring Statement, it said it wanted to “get the balance right between cash and equities to earn better returns for savers” and “boost the culture of retail investment”.

New Financial, which was set up in 2014 by former journalist William Wright, claimed the reforms would affect only a “small minority” of ISA users and argued they could lead to long-term improvements.

“This paper will no doubt upset lots of people,” the group admitted. “But we think any of these reforms… would be a big improvement on the status quo.”

Other ideas include merging all ISAs into a single simplified product, possibly renamed ‘Investment and Savings Accounts’ to encourage more people to take the plunge into equity markets.

Ms Reeves has made it clear she wants to channel more savings into UK companies to help grow the economy – but campaigners warn that forcing risk-averse savers into the stock market could backfire.

More than 9 million adults subscribed to a cash ISA in 2021/22, according to HMRC, with many relying on them for low-risk, tax-free interest amid a cost-of-living squeeze and turbulent markets.

The Chancellor has so far refused to confirm whether the cash ISA cap will be introduced, but has not ruled it out, saying the Government will “engage with the industry and the public on the best way forward”.