The amount savers under 65 can put into cash ISAs will be slashed from £20,000 to £12,000 as the chancellor tries to revive the UK stock market after a five-year investor exodus.

Although the overall £20,000 ISA allowance will remain, Rachel Reeves said from April 2027 £8,000 of that must go into a stocks and shares ISA.

Plans to digitalise ISA administration and applications have been delayed until 2028 but current subscription levels would remain in place until 2030/31, the Treasury said.

Richard Stone, chief executive of the Association of Investment Companies, welcomed the move to bolster stocks and shares ISAs which he said was a “milestone” to creating an investment culture in the UK.

HMRC statistics shows that in 2022/23 over a quarter of the 7.1m subscriptions into cash ISAs exceeded £12,500.

“The new cash ISA limit will incentivise more than 2m people to start investing in the stock market – rather than taking the risk of their long-term savings being eaten away by inflation,” he said.

Robin Fieth, chief executive of the Building Societies Association, was disappointed by the lower cash ISA limit saying it could add more complexity, particularly around ISA transfers, and risked damaging the overall ISA “brand”.

He added: “We welcome the steps taken to support those aged 65 or over. This group of savers could have been particularly affected by a lower subscription limit as they draw down their pensions or look to de-risk their investments. The decision to implement the changes in 2027, rather than rush them through for the next tax year, is also helpful.”