Martin Lewis has issued a £10,000 alert on cash ISAs and warned Chancellor Rachel Reeves she could be making a big mistake. Speculation is growing that the government could be planning a raid on Cash ISAs, slashing the amount people can put in tax-free every year.

The Financial Times reported that Chancellor Rachel Reeves is looking to use the Budget to revive plans for an overhaul of tax-free Isas as the Government seeks to support an investment culture.

A person close to the process said the Treasury was considering a £10,000 annual cash Isa limit, the Financial Times reported. It is understood that several potential options are on the table and no decisions have been made.

More than 14 million people in the UK are thought to have over £10,000 saved in cash, and the Government believes some of this could be invested in the stock market to improve people’s financial health.

The cash Isa limit has been the subject of various rumours in recent months, with speculation previously mounting during the summer.

The current annual Isa limit is £20,000, of which all can be put into cash if savers wish.

But Mr Lewis, a personal finance expert has said he does not believe the change would achieve the desired effect. he said: “FT reports @RachelReevesMP may be resurfacing plans to cut the Cash (not shares) ISA limit from £20,000/yr to £10,000/yr. Treasury says any ISA changes won’t be to raise revenue but to encourage investing

• Lack of investing is a problem
• Cutting cash ISA limit ISN’T the solution

“In the meetings I’ve had I’ve been told again and again they want to encourage, especially younger people, to invest. Yet a cash ISA cut would simply p*** millions of, often older, people off and I doubt will change the dial on investing, it’d just mean more tax paid on saving, and a problem for building societies raising cash for mortgages. If they were saying they were doing it to raise revenue, at least that would be a logical.”

Instead Mr Lewis said he thought a new type of ISA was needed to encourage younger people to save. He said: “What is needed is for them to encourage investment, better education, and better incentives, again in a recent meeting with @LucyRigby I proposed a younger person Starter Investment ISA bonus, of eg 10% added on the first £2,000 invested (funded by the investment firms).

“Have a recognised product that can be communicated, which has a unique selling point to get people to dip their toe in the water and start to understand it. Carrot will work better than a stick!”

A building society yesterday warned the Government could risk derailing its own housing targets if the cash Isa limit is slashed. Charlotte Harrison, chief executive of home financing at Skipton Group said: “Building societies, which fund over a third of all first-time buyer mortgages, rely on retail deposits like cash Isas to fund their lending. If Isa inflows fall, the cost of funding is likely to rise, and that means mortgages could become both more expensive and harder to access.

“That risks derailing the Government’s own target of building 1.5 million homes, a goal that depends on buyers being able to secure affordable mortgage finance. At Skipton, we back getting more people to invest, absolutely. But not by penalising savers who want low-risk, flexible options. Cash Isas work. Undermining them doesn’t.

“What’s needed now is a Government-supported, industry-led campaign to boost financial awareness, helping people make confident choices about when to save and when to invest. We’ve raised our concerns directly with Ministers and will keep pushing for a balanced approach which protects savers and supports home ownership.”

Jeremy Cox, head of strategy at Coventry Building Society, said: “The simplicity of the Isa is one of its greatest strengths – savers can put in up to £20,000 every year, switch between the stock market or cash, or have a mix of the two.”

He added: “In nudging people toward investing more, the Chancellor needs to be careful she doesn’t throw the baby out with the bathwater and discourage people from building up their cash savings too.

“The Isa remains one of the most popular ways to save or invest and our members keep telling us how unpopular any change to their annual cash allowance would be.”

A Treasury spokesperson said: “Cash savings are important for people looking to put cash away for a rainy day, and we will protect that. But the Chancellor has been clear that she wants to get Britain investing again – so British companies can grow and British savers who choose to can get more in return.”