Slashing the amount that can be saved in a cash Isa will not reap the rewards to plug a Budget black hole, Rachel Reeves has been warned.
The Treasury Select Committee urged the Chancellor not to halve the current £20,000 tax-free amount amid City lobbying.
It would be part of a move to encourage savers to divert billions of pounds of cash savings into the stock market and boost the £6billion the Treasury rakes in from tax on savings interest each year.
But the committee claimed it was unlikely to lead to investment in stocks and shares instead.
Ms Reeves was expected to announce such a cut in July, but it was put on hold following the Daily Mail’s Hands Off Cash Isas campaign.
Cash Isas are the most widely used type and some £360billion is now held in them.
Britons can currently choose how they use their full annual tax-free wrapper, either in cash savings, investments or a mixture of both.
Dame Meg Hillier, the committee’s chairman, said: ‘This is not the right time to cut the cash Isa limit.
Rachel Reeves (pictured) has been warned that slashing the amount that can be saved in a cash Isa will not reap the rewards to plug a Budget black hole
‘I fear that the Chancellor’s attempts to transform the UK’s investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers.’
Shadow Chancellor Sir Mel Stride added: ‘In reality this would be a tax raid, pure and simple. It’s little wonder the Daily Mail has stepped in to defend savers through its campaign.’
Building societies have argued restricting cash Isas would not ‘suddenly change savers’ appetite to take on risk.
They also use savings held in cash Isas to fund mortgages and restricting inflows would potentially drive up the cost to homebuyers.
The Building Society Association warned: ‘A cut to the allowance could have the knock-on effect of making loans to households and businesses more expensive and harder to come by.’