Rachel Reeves is set to announce plans to cut the annual allowance for Cash ISAs in a push to encourage people to invest more.

It is expected the chancellor will unveil the measure in her Mansion House speech, which takes place on July 15.

The Financial Times cited government officials confirming the chancellor would lower the allowance, in what will be the first major alteration of ISA limits since 2017-18. Officials added that talks over the final figure were still ongoing.

ISAs allow everybody to save or invest up to £20,000 in a tax-free environment, though there are some restrictions on different products in the range – for example, £4,000 a year can go into a Lifetime ISA, which itself is set for reform amid criticism.

Earlier this year, the chancellor was in discussions with City figures over potentially cutting the Cash ISA allowance to the same figure, with the overall aim to get more people investing and earning better returns over the long term, to drive individual wealth higher.

Ms Reeves later confirmed that the total ISA allowance would not be cut, but said potential reform would be to encourage people to do more with their cash. “I’m not going to reduce the limit of what people can put into an Isa, but I do want people to get better returns on their savings, whether that’s in a pension or in their day-to-day savings,” she said at the time.

“And at the moment, a lot of money is put into cash or bonds when it could be invested in equities, in stock markets, and earn a better return for people. But I absolutely want to preserve that £20,000 tax-free investment that people can make every year.”

As there is no confirmation of what the new cash ISA limit will be, it is uncertain what the impact will be on ordinary savers.

However, the latest available data from 2021-22 showed an average of £4,330 of new money put into a cash ISA. As such, it may be expected that the real current level has risen slightly, if it continued the trend from the previous decade.

HMRC figures show that in the 22-23 tax year, more than 7.8m people had cash ISAs, compared to 3.8m with stocks and shares ISAs, also known as investing ISAs.

Bank of England data showed savers put a record £14bn into cash ISAs in April of this year after talk of a cash ISA allowance cut arose – a record amount since the product was launched in 1999.

Money Saving Expert former owner Martin Lewis said cutting the cash ISA was a form of “p*ss people off economics” and, writing on X, said that while he was broadly in favour of encouraging people to invest, this was not “the route to do that”.

“My suspicion is that for many who use cash ISAs, it will just result in many having to pay more tax on their relatively paltry savings interest, not have an epiphany and think ‘oooh i’ll just fill up the remainder of my ISA allowance with investments instead’”, he wrote.

“I’ll be disappointed if the chancellor chose to listen to the big investment firms in the City, and shut down many building societies and consumer groups who’ve said its not a good route.”

Investment platform AJ Bell has had a prominent voice during discussions, calling for different reform to encourage new investors than merely cutting a cash ISA allowance, such as removing stamp duty and simplifying the overall ISA environment.

“Research supported by AJ Bell shows that when faced with excess complexity, people often choose the path of least resistance in the form of cash saving,” said Tom Selby, the firm’s director of public policy.

“As the Treasury Committee report points out, the binary nature of cash and stocks and shares Lifetime ISAs exacerbates the danger people end up saving in cash when they could be better served investing, especially when using the account to fund retirement.

“Removing complexity could play a crucial role in smashing the psychological and material barriers between saving and investing. Simplifying the ISA landscape, including the Lifetime ISA, would make it easier for people to identify the right product for their needs and put an end to what many consumers see as an either/or choice between cash savings and investments.”

The reform to ISAs comes at a similar time to the FCA announcing changes to financial advice people can receive, with “targeted support” bridging the gap between general guidance and paid-for bespoke financial planning.