Chancellor Rachel Reeves is widely expected to announce a major reduction to the annual tax-free Cash ISA allowance, a move that could affect millions of UK savers. The anticipated cut to the current £20,000 cap, which determines how much can be sheltered from tax in Cash ISAs each year, is likely to be confirmed during her Mansion House speech on July 15.

Although Ms Reeves has previously stated she has no intention to lower the overall ISA allowance of £20,000, the Cash ISA limit remains under threat. Financial experts are now urging savers to take advantage of the current allowance before any changes come into force. Colin Low, managing director at Kingsfleet, said: "It would be highly unlikely for current Cash ISAs to have their terms amended retrospectively, so if you still want to maximise your tax-free savings, then make sure that you use your current year allowance (£20,000)."

Looking ahead, Mr Low suggested investors review their financial needs carefully.

He said: "Investors would be wise to know what they need to have available in the next three or so years, or what could have a longer-term perspective.

"Where funds are needed short term, then it's all about maximising deposit-based returns. If the longer term is an option, then an investor can tolerate greater risk."

City leaders have been mounting pressure, arguing that reducing the allowance could encourage more savers to invest in UK companies and stimulate the stock market.

Some have called for the cap to be slashed to as little as £4,000, though the exact new limit has yet to be revealed.

However, concerns have been raised about the potential risks to the stability of the UK's savings system. Industry voices stress that maintaining public confidence is "vital" and warn that cutting the Cash ISA allowance could harm building societies. These organisations rely on customer deposits - 40% of which come from Cash ISAs - to fund half of their mortgage lending.

Since building societies are restricted in their ability to offer investment products like stocks and shares ISAs, a reduction in the tax-free limit could significantly undermine their deposit base and, by extension, their lending capacity.

Andrew Craddock, Darlington Building Society chief executive, said: "By making Cash ISAs less attractive, savers will likely explore other options, and it is difficult to see how building societies could sustain current lending levels if Cash ISA deposits were significantly reduced. This would directly impact the mortgage market, with reverberations across the housing market."

He added: "Cash ISAs are used by those who want to earn interest on their funds without taking the risk of investing and enjoy the benefits of tax-free saving whilst knowing exactly where their money is. Most typically, this is older savers and those on lower incomes."