Reeves was expected to cut the annual allowance on cash ISAs to £20,000, while maintaining the stocks and shares limit at the same level in a bid to encourage more people to invest.

But there has been outcry from building societies, credit unions and consumer groups, which warn that doing so would have damaging consequences.

Lenders say that it would reduce a vital source of mortgage funding, particularly for building societies, which would have a detrimental impact on the availability and pricing of home loans.

Consumer groups warn that many rely on their tax-free cash ISA allowance to save for housing deposits and also to keep an emergency fund for unforeseen expenses.

Lowering the allowance would send the wrong message to savers, they say.

The concerns were outlined in an open letter to the chancellor from industry leaders this week, signed by bosses of the Building Societies Association and many of its members, as well as other stakeholders.

But the Financial Times reports that Reeves has decided to shelve her plans for now, while other reforms are considered.

Government officials told the newspaper that the chancellor will instead use her Mansion House speech next Tuesday to pledge more advice to encourage consumers to invest in stocks and shares, including in British companies.

Building Societies Association chief executive Robin Fieth welcomed the news.

He says: “This is a good example of HM Treasury actively listening to the industry and committing to a consultation process rather than making hasty decisions.

“Over recent months we have shown that cash ISAs serve a broad range of practical purposes, from building financial resilience to saving for a first home to managing finances in retirement.

“These are not idle funds; they provide a vital role for consumers while financial organisations use these funds to support mortgage and other lending.

“We look forward to working collaboratively with the government to find an approach which fosters a strong investment culture, whilst also recognising and supporting the needs of those for whom investing may not be suitable.”

Moneyfactscompare.co.uk consumer expert Adam French says: “Slashing the cash ISA allowance risks raising mortgage costs, with various mutuals making it clear how vital cash ISAs are as a source of funding, which could cause chaos in the housing market.

“Clearly, there would have been real consequences if any cut to the cash ISA allowance has not been thought out thoroughly.

“Many savers are fearful of stocks plunging and losing a portion of their original investment.

“Equipping savers to navigate this volatility instead requires a change in our cultural educational and advice approach to saving and investing.”

Hargreaves Lansdown head of personal finance Sarah Coles says: “This decision makes perfect sense, because it should give the government the chance to see the impact of the other steps it’s taking to boost investment that could really be game changers for retail investment.

“Changing the boundary on advice and guidance will be truly transformational.”