Rachel Reeves has been urged to “stick to her guns” and cut the Cash ISA allowance to £10,000 in the upcoming Autumn Budget.

The move is said to generate gains worth £7.2billion for savers who instead deposit their cash into a stocks and shares ISA.

Around 2.8 million people currently save more than £10,000 a year into cash ISAs, roughly a third of all ISA holders, according to new research from investment platform IG.

The firm says that if the Chancellor goes ahead with plans to halve the annual cash ISA allowance to £10,000, many savers could see better long-term returns by investing the extra money instead of keeping it in cash.

YouGov polling cited by IG found that 28 per cent of higher-rate cash ISA savers said they would move any money above the new limit into a stocks and shares ISA.

Based on this, IG estimates that around 784,000 savers could each make more than £9,000 in extra returns over five years by investing their leftover cash in the stock market rather than leaving it in savings.

Overall, the total potential boost to savers’ returns could reach £7.2 billion – highlighting how a lower cash ISA limit could encourage more people to invest for growth rather than rely on low interest savings accounts.

Michael Healy, UK Managing Director at IG, said: “The Chancellor is absolutely right to tackle the UK’s overreliance on savings, starting with a product that does nothing for long-term wealth creation – the cash ISA.

“Reducing the annual allowance to £10,000 sends the right message that the government is serious about getting more people investing and we would encourage the government to go further by abolishing the cash ISA altogether.

“Our analysis refutes the claim from building societies that reducing the cash ISA allowance to £10,000 would impact their deposits significantly. Suggestions that it could threaten the mortgage market are simply scaremongering.

“The reality is that this reform is sensible, proportionate, and long overdue. We urge the Chancellor to stick to her guns.”

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IG’s research directly contradicts warnings from building societies about potential damage to mortgage lending from the proposed cash ISA reduction.

The platform’s analysis reveals that only £1.6billion in annual cash ISA contributions would likely move away from building societies if the allowance is halved. This figure represents merely 0.4 per cent of building societies’ total retail deposits, according to IG’s calculations.

The Building Society Association has previously stated that its members hold approximately 40 per cent of all cash ISA balances.

However, IG’s findings suggest the actual impact on building society funding would be negligible, undermining industry claims that the policy change could threaten mortgage availability.

The minimal projected outflow indicates that concerns about destabilising the mortgage market through reduced building society deposits appear unfounded.

IG deployed a mobile advertising van through central London this week displaying messages directed at Rachel Reeves, encouraging the Chancellor to implement the rumoured cash ISA reduction.