Chancellor to ditch Rachel Reeves' attack on cash Isas with limit due to stay at £20,000 a year

John Healey is expected to abandon his predecessor Rachel Reeves' 'car crash' plans to cut the cash Isa allowance when he delivers his first Budget this afternoon.In a victory for This Is Money and Daily Mail's 'Hands off our cash Isas' campaign, the Chancellor will scrap plans to slash the allowance from £20,000 to £12,000 for under-65s from next April.The policy, designed to encourage more investment into British companies, was met with horror by industry experts when it was announced last autumn. Healey is expected to say it would be better to educate people about investing in stocks and shares to generate higher returns than to cut tax breaks, the Financial Times reported.Cash Isas are the UK's most popular savings product and are exempt from tax on interest, as well as on capital gains and income taxes.Savers can choose to put their allowance into either cash, stocks and shares, or a mix of both. Reversal: Healey will restore the cash Isa limit to £20,000 after backlash from the industryFor years, Isa holders have been trusted to use their allowance in the way that suits them best.But 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.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 shouldn't be surprised the Cash Isa cut is set to be 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.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.' Research by Trading212 showed that without scrapping the proposals, savers could be put off investing – defeating the very point of its stated aim.Meanwhile, 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.Healey's decision to reverse the cuts will be welcomed by banks and building societies, which are bracing for a tax raid on their profits.Investment industry figures are less pleased with the Government's U-turn, branding it 'deeply misguided'. 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.'SAVE MONEY, MAKE MONEYUp to £300 cashbackUp to £300 cashback£25-£300 cashback on at least £3004.87% cash Isa4.87% cash IsaTrading 212: 1.27% fixed 12-month bonus£2,500 cashback£2,500 cashback£250-£2,500 cashback when opening SippUp to £150 cashbackUp to £150 cashbackOpen a savings account with at least £5,000Welcome bonusWelcome bonusGet up to £200 when you invest £100Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence. Terms and conditions apply on all offers.