The government is reportedly planning to cut the cash ISA annual allowance to just £12,000 in today’s Budget.

The report was first published in the Financial Times which suggested the change would be aimed at encourage people to switch their savings to investments.

The FT report suggested that Rachel Reeves had initially planned to reduce the limit to a £10,000 cap, but raised the figure after discussions.

Last month a cross-party Treasury select committee report estimated that British households have £360bn tied up in cash ISAs, with many opting for the tax-free accounts over riskier investments in stocks and shares.

Stephen McGee, chief executive of Scottish Friendly said the potential cut would be a good move. He said: “Cutting the annual cash ISA allowance would be a big, decisive step towards building a US-style long-term investing culture.

“If the goal is to genuinely change behaviour, the cap ideally needs to be around £8,000. That still gives households enough scope to build a meaningful emergency fund while encouraging those saving larger sums to invest the rest. This is a real lever the Chancellor can pull to boost growth, productivity, and household wealth.”

Sarah Coles, head of personal finance, Hargreaves Lansdown, said she disagreed. She said: “We need an investment culture in the UK, and some of the money that has been saved in cash ISAs would work harder for people if it was invested instead, but there’s no evidence that cutting the cash ISA allowance would encourage them to make the change.”

She said there will be people for whom cash ISAs are the most sensible home for their money, especially if they’re saving for the short term, have significant sums of cash and are a higher earner. HL clients were just as likely to say a cut in the allowance would mean saving elsewhere as they were to say they would invest instead.

Ms Coles said: “There will be those who should be investing instead, but the gamechanger here will be changes in the pipeline to allow businesses to provide more targeted support and give people the help they need to take advantage of the enormous growth potential of investment. It’s the carrot that’s going to be effective here: not the stick.

“Savings can act as a gateway to investing too. It’s certainly something we see with our clients, so they begin by opening a cash ISA, and as they build their understanding of investments, they transfer this money into a stocks and shares ISA.”

She said the current system makes this straightforward, because there’s flexibility over transfers, so it’s easy to move from cash to stocks and shares and back again. “If this change is introduced, the government needs to focus on keeping journeys as simple as possible for clients.”