Chancellor has confirmed that the Government has no plans to cut the ISA allowance, following widespread criticism sparked by rumours of a potential reduction to £4,000. However, Ms Reeves has indicated that changes to how function may still be on the table, though the specifics remain unclear.

Speaking to the BBC on Monday, Ms Reeves said: "I'm not going to reduce the limit of what people can put into an ISA, but I do want people to get better returns on their savings, whether that's in a pension or in their day-to-day savings. And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people."

She added: "But I absolutely want to preserve that £20,000 tax-free investment that people can make every year."

UK residents can currently save up to £20,000 a year in an Individual Savings Account (ISA) without paying tax on the interest earned. There are four types of ISAs - cash ISAs, stocks and shares ISAs, lifetime ISAs and innovative finance ISAs - and this allowance is spread across all of them.

Earlier this year, Economic Secretary to the Treasury Emma Reynolds told a Lords committee that cash ISAs were pulling money away from the London Stock Exchange. She questioned the large sums held in cash ISAs and suggested that the UK had not succeeded in fostering a strong culture of investment.

Soon after, the Treasury announced that a major review of ISA rules would take place ahead of the Autumn Budget. The Chancellor also told MPs an ISA overhaul "would be worthwhile", hinting at possible changes to encourage more investment in stocks and shares.

However, the speculative changes - one being an allowance reduction to £4,000 - were met with widespread criticism, with some arguing that retaining confidence and stability in the nation's saving system is "vital".

Senior figures from HSBC, NatWest, Lloyds, and the Building Societies Association warned that proposed ISA reforms could raise pensioners' tax bills without significantly boosting economic growth.

Ms Reynolds was also cautioned that lowering the ISA allowance could harm building societies, which are required to fund half of their mortgage lending through customer deposits - 40% of which come from cash ISAs. With restrictions limiting their ability to offer investment products like stocks and shares ISAs, any reduction in the tax-free limit could jeopardise their deposit base.

Rob Morgan, chief investment analyst at Charles Stanley, said: "As a nation, we are already not saving or investing enough. It's also important that those with shorter-term objectives or who cannot tolerate any risk are not penalised. The Cash ISA is an important and well-recognised product for these people, and it can remove worries about reporting and incurring tax liabilities on interest."

He added: "What's more, the money stored in Cash ISAs has some beneficial effects on the UK economy. While it's not directly invested, it is often money that can be loaned out by banks and other providers to households and businesses.

"It doesn't make sense to take an axe to Cash ISAs, though there is a stronger case for echoing the past with a larger annual ISA allowance to encourage more investing."