Speculation has been growing that Rachel Reeves will slash the allowance in her Mansion House speech next week, while maintaining the stocks and shares ISA allowance to encourage more people to invest.

The letter highlights the importance of cash Isas to savers, with over 18m accounts in use, nearly half of which belong to individuals who earn less than £20,000 a year.

The average balance is £13,400, providing a crucial financial buffer for many on low and middle-incomes, the stakeholders warn.

But the signatories also point out the vital role these cash deposits play in funding mortgages and other loans, particularly for building societies and credit unions.

Savers have been rushing to open cash Isa accounts ahead of any changes, according to Skipton Building Society, one of the signatories of the letter, which has seen applications surge by 45% in a week.

Skipton chief executive of home financing Charlotte Harrison says: “For over two decades, cash ISAs have helped millions of people build funds for a rainy day, save for home deposits, and protect their short- and medium-term financial goals without worrying about tax eating into their returns.

“Building societies, which account for over 35% of all first-time buyer lending, rely on retail deposits, including cash ISAs, to fund mortgage 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 directly undermining the government’s own target of building 1.5 million new homes, a goal that depends on buyers being able to secure affordable mortgage finance.”

Building Societies Association chief executive Robin Fieth says: “Cash ISAs are used for a wide range of purposes—from saving for a first home to managing finances in retirement.

“These are not idle funds; they serve real, practical needs for both savers and the building societies, banks and other providers that receive the funds, and use them to support mortgage and other lending.

“Simply changing ISA limits is unlikely to encourage people to invest, but it will hurt people who are responsibly saving for short-term goals, where investing may not be appropriate.”

Moneybox chief homebuying and savings officer Cecilia Mourain says: “Cash ISAs are vital for building financial resilience, and reducing the tax-free allowance is unlikely to deliver on its intended objectives.

“Instead of supporting the government’s ambition to build a stronger investing culture, it will discourage sensible saving behaviour, weaken demand for a popular product and disrupt the flow of capital that supports mortgage lending and economic stability.”