British savers will receive an additional £5,000 annual tax free British ISA allowance in addition to existing allowances, pushing up total ISA investment to £25,000 for investors who use the British ISA.

British ISAs will exclusively invest in UK equities.

Steven Cameron, pensions director at Aegon, said he expects the British ISA to be popular with those currently using their ISA limits but there needs to be a strong definition of what qualifies as a UK investment for it to work. He backed the idea of a British-defined investment wrapper, however.

He added: “It will offer transparency, appealing to those who wish to be certain their investment is staying within the UK. It will be important the forthcoming consultation creates an unambiguous definition of what qualifies as a UK investment within a British ISA.

“Investors should however be mindful about putting all their ‘eggs in one basket’. Diversifying across different asset types and geographical locations can be an important way of managing investment risk, something which should be emphasised to potential investors."

Others were more sceptical about how popular the new British ISA will be.

Mike Ambery, retirement savings director at Standard Life, said: “The big question is whether today’s incentive will be enough to encourage people to invest at home.

“One factor working in the Chancellor’s favour is the growing number of people with cash savings outside of an ISA, many of whom will now be paying tax on the interest. The additional £5,000 allowance might be enough to tempt some of them to invest and the UK is home to many excellent companies.”

Rachael Griffin, tax and Financial Planning expert at Quilter, said the launch of the British ISA allowance raised significant implementation challenges and further complicates the ISA system.

She said: "So few people use their total ISA allowance in a given tax year so the allure of £5,000 more is only appealing to much higher net worth people. The reality is we need to better incentivise the millions languishing in cash ISA accounts to be put to work in the stock market.

"Moreover, the effectiveness of this initiative is contingent upon its uptake by the public and the response from UK companies. There is a palpable risk that the ISA may not attract the intended level of investment, or only primarily benefit wealthier individuals.

"While the British ISA is presented as a strategic move to bolster the UK stock market and economy, it is fraught with potential pitfalls and may not address the root causes of the challenges facing the UK's financial sector. The measure is likely a politically motivated stunt ahead of upcoming elections, rather than a well-considered strategy aimed at sustainable economic growth."

The creation of the British ISA comes alongside a push to get UK defined contribution pension schemes to invest more in the UK, including in private assets. Mr Hunt said the Government will also force local authorities and defined contribution pension funds to disclose how much they have invested in UK shares.

UK pension funds currently invest only 4% of their assets in UK shares, according to the Chancellor.