The government could cut the cash ISA allowance to encourage more people to put money into stocks and shares ISAs to boost investment, it suggested today.

The government said today it would look at “options” to reform Individual Savings Accounts to “get the balance right” between cash and equities.

In the Spring Statement documents released today, the Treasury said more use of stock market ISAs could improve the long term returns for investors and “boost the culture of retail investment.”

The Treasury also says it is working with the FCA to provided targeted support to people to give them the confidence to support, believed to be a reference to the advice-guidance boundary review which is widely expected to open the door to new types of targeted support and financial guidance.

Some had expected Chancellor Rachel Reeves to announce today a cut to the cash ISA allowance from £20,000 to £4,000 a year to encourage more investment in stocks and shares ISAs and avoid large amounts of cash languishing in cash ISAs or many year. However, this did not happen and now experts expect a review over the coming months and possibly an announcement in the Autumn Budget although there is no certainty of any change.

Most experts welcomed the plans to review cash ISAs.

Chris Cummings, chief executive of the Investment Association, said:  “We welcome today’s commitment from government to boost the culture of retail investment, including looking at options for ISAs reforms that will get the balance right between cash and equities to earn better returns for savers.

“Our industry has long called for the government to create a culture of inclusive investment, which will see more people benefit from investing, and we’re pleased that the government has now heeded this call.”  

Nick Henshaw, head of intermediaries at Wesleyan Assurance Society, said: “It was reported that the Chancellor had been mulling cutting the cash ISA allowance in today’s Spring Statement. This could now happen in the Autumn Budget instead.

“The government is trying to build a culture of retail investing – something we welcome if it supports people’s long-term financial wellbeing. And it presents a real opportunity for intermediaries to once again underline the value of advice.

“If and when cash ISA reform comes, savers may start exploring alternative solutions for their money that still provide the same tax benefits. Advisers can support this switch, which could include helping savers consider a Stocks and Shares ISA with specialist smoothed funds within them. These funds are available on certain platforms, and can help ‘smooth’ out sharp peaks and troughs in the investing journey – something likely to appeal to new investors who might be nervous about day-to-day volatility.”

Rachael Griffin, tax and Financial Planning expert at Quilter, said: “It’s encouraging to see the Treasury taking a serious look at ISA reform.

“ISAs are long overdue some careful thought to ensure they are both simple and produce the right behaviours. There’s a real opportunity here to simplify the system and better align it with Labour’s objectives."

Financial Planning Today Analysis: Chancellor Rachel Reeves today backed off from any sudden cut to the cash ISA allowance. With major economic and fiscal challenges today was not the right time to be hitting savers, especially when many are nervous about investing. The Treasury review is likely to look at sensible reforms of cash ISAs. Far too much is squirrelled away in cash ISAs with no real strategy for using it, left to build up an enormous, tax incentivised cash mountain. If cash ISA owners do get incentives, perhaps of the stick and carrot variety, to invest more it could have long term benefits for the economy and for their returns but any reforms will need to be handled with care and wide consultation. There's no certainty cash ISA savers will want to invest in equities, at least not without safeguards and assurances in place of some kind to prevent rapid loss.