Chancellor John Healey has scrapped controversial plans to cut the annual cash ISA allowance from £20,000 to £12,000.

Delivering his first Autumn Budget, Healey said he was taking a “new approach today” to encourage more people on “ordinary incomes to save and invest”.

He also stated that he will work with the sector to create a new “Starter ISA” for first time investors.

Tom Selby, director of public policy at AJ Bell, commented: “Rachel Reeves’ ISA reforms were a car crash, lamented by most of the retail investment industry, who criticised the complexity they would add for little consumer benefit, and building societies, who warned they would increase mortgage costs.

“While the central aim of encouraging more people to invest for the long-term was the right one, the route Healey’s predecessor chose to achieve this was painfully convoluted, hardening the border between short-term saving and long-term investing and adding overwhelming complexity – not to mention a tax charge – into the system in the process.”

Maike Currie, VP personal finance at PensionBee, added: “We warned at the time that restricting Cash ISAs risked penalising the very people who need the most help building long-term wealth, women in particular. You don’t persuade people to eat more meat by rationing their vegetables.”

Healey also announced a new Pension Tax Allowance to protect low-income pensioners from paying income tax on their state pension, as the full new state pension is set to exceed the personal allowance for the first time in April.

Healey confirmed that pensioners with income up to the value of the full new state pension will not pay income tax during this parliament.

The measure is intended to fulfil the government's previous commitment to ensure pensioners relying solely on their state pension would not face an income tax bill as a result of triple-lock increases.

The full new state pension is expected to rise by 3.9% from April 2027, to £13,036.40 a year, above the frozen personal allowance of £12,570.

---