The call from the Treasury Committee comes after the Chancellor is understood to have revived plans to overhaul tax-free Isas that seemed to have been shelved after opposition from mutual lenders in the summer.  

Rachel Reeves is understood to be studying plans to lower the product’s tax-free limit by as much as half to £10,000 from £20,000 a year at the 26 November Budget. 

The Chancellor hopes to shift investors towards stocks and shares Isas in a bid to boost UK businesses. 

But the committee says the move is “unlikely to incentivise people to invest their cash in stocks and shares,” partly because many of these cash savers are uncomfortable with investing in the financial markets. 

MPs add: “Reducing the allowance would also have other negative knock-on effects for consumers.  

“Building Societies depend on cash Isa savings as a critical funding source for their mortgage lending.  

“If this was reduced, it would mean a less competitive market for financial products and consequently higher prices for consumers.” 

Cash Isas are the most widely used type of Isa. They accounted for 66% of all Isa contributions last year, bringing total cash Isa holdings to £360bn. 

Outgoing Building Societies Association chief executive Robin Fieth points out: “Cutting the cash Isa allowance is all downside. It won’t encourage investment. It will simply undermine savings habits and make mortgages more expensive.” 

“This is ultimately a question of fairness. Cutting the cash Isa limit benefits those with significant financial resources who can access other investment options to continue to build their wealth.  

“Meanwhile, working people and pensioners – who may have smaller savings pots and a lower risk tolerance — will lose a trusted way to grow their savings securely, including the opportunity to put a small inheritance or pension lump sum into their cash Isa.” 

MPs say savers need to be introduced to stocks and shares investing. 

The committee says: “The focus should be on improving financial literacy and enhancing access to good advice and guidance so that people can make informed decisions with their savings.” 

Treasury Committee chair Meg Hillier (pictured) adds: “This is not the right time to cut the Cash Isa limit. Instead, the Treasury should focus on ensuring that people are equipped with the necessary information and confidence to make informed investment decisions.

“Without this, I fear that the Chancellor’s attempts to transform the UK’s investment culture simply will not deliver the change she seeks, instead hitting savers and mortgage borrowers.”