John Healey is to use his first budget to ditch plans to slash the annual cash Isa allowance, the Guardian understands, preferring a carrot rather than a stick to encourage people to invest more in shares.City experts welcomed news that the chancellor will overturn a decision by his predecessor, Rachel Reeves, to cut the allowance from £20,000 to £12,000 a year from next April to get more money flowing into UK company stocks.The reversal is also likely to be popular with banks, which already face higher taxes in the budget, and building societies, as they rely on deposits to fund loans to households and businesses.Healey is expected to say in his tax and spending statement to the House of Commons on Wednesday that it is better to educate people about the advantages of investing in stocks and shares to generate higher investment returns than to reduce tax breaks on savings.Finance bosses had warned that the cut could deter consumers from saving and push up mortgage rates.Cash Isas are the UK’s most popular savings product. All Isas are exempt from tax on interest, as well as income and capital gains taxes.The Treasury declined to comment on the news, which was first reported by the Financial Times.Jo Harris, the chief customer and operations officer at the wealth management company Quilter, said: “There is a positive in retaining a simple £20,000 allowance that savers understand.“But if the chancellor believes carrot is better than stick, there are other options.

Rather than restricting the existing Isa allowance, the government could consider an additional investment-only allowance on top of the £20,000 Isa limit, alongside better financial education and support to give people the confidence to invest.”skip past newsletter promotionafter newsletter promotionHowever, not everyone in the City agreed. Michael Healy, the chief executive of IG Group’s consumer division, said: “The chancellor has squandered a golden opportunity to help British households build long-term wealth and get more money flowing into the businesses that drive our economy.“Cash Isa subscriptions surged by £26.1bn last year, more than four times the increase in stocks and shares Isas, yet the chancellor has chosen to reinforce the very savings culture that is holding Britain back.“Worse still, IG modelling suggests phasing out cash Isas for new contributions could generate up to £610m in additional annual tax revenue by 2032-33, without touching existing savings.”