Rachel Reeves will slash the tax-free cash Isa allowance at next month’s Budget.
The Treasury will roughly halve the £20,000 amount that can be shielded from tax in an attempt to encourage savers to invest in stocks and shares.
Lucy Rigby, the Economic Secretary to the Treasury, told The Telegraph the reforms could be described as “Thatcherite”.
Critics, however, have warned that the move could damage incentives for long-term investment.
Under the current rules, savers are allowed to put up to £20,000 a year into an Individual Savings Account (ISA) and not pay tax.
Money can be spread between different ISA pots, cash, stocks and shares, lifetime Isas and innovative finance Isas.
But in the Budget on Nov 26, the threshold for the cash ISA will be lowered.
Ms Rigby said: “We are looking at the right balance between cash and shares in the Isa. The bottom line is we want people to be better off and one way we can do that is to build a shareholding democracy in this country.
“So that’s about empowering more people to invest, allowing more people to participate in wealth accumulation and ensuring that households have a greater degree of financial resilience and security.”
