Rachel Reeves has been urged by economists to rethink her plans to reform cash ISAs at a time when savers are more “risk-averse” and stock markets are tumbling.

Last week, the Chancellor confirmed that reforms will be going ahead to encourage Britons to invest their money.

Speaking to the Commons’ treasury committee, Reeves said that “reform would be worthwhile” when asked about rumours she is planning to cut the amount people can deposit into cash ISAs each year.

She hinted that any changes to the current rules, which allow savers to put up to £20,000 into either a Cash ISA or a Stocks and Shares ISA, would be intended to increase the proportion of people investing in products that show a greater return over time than cash.

But economists have said making any changes now is “questionable”.

Professor Stephen Barber of global affairs at the University of East London told The i Paper: “To reform the cash ISA right now is highly questionable given the implication that otherwise risk-averse savers should be investing in a stock market set into freefall by the same Trump kamikaze economic policies that have wrecked the Chancellor’s careful budgeting.”

Stock markets across Europe and Asia plunged on Monday as fears over the global effects of US President Donald Trump’s trade tariffs deepened.

The FTSE 100 fell by as much as 6.3 per cent on Monday, ending the day closing down by 4.38 per cent.

Meanwhile, Germany’s Dax index plummeted by 10 per cent in the first few minutes of trading, before recovering ground, after Asian markets dropped steeply overnight, with Hong Kong’s Hang Seng experiencing its fourth-biggest one-day decline ever.

The S&P fell by 4 per cent in New York on Monday and is on track to plunge into a bear market after falling by 20 per cent from its record high set in December.

‘It’s risky to push savers towards this level of investment risk right now’

Some economists have said it is not the right environment to push savers towards higher levels of risk now.

Dr Michael Harrison, senior lecturer in economics at the University of East London, said: “The Chancellor is currently considering lowering the cash ISA allowance in order to either get money spent in the shops, or to encourage more people to channel funds into the stock market to support UK-listed companies.

“In reality, most stocks and shares ISA’s probably just hotwire savers to large international equity indexes and introduce unpredictable downside risk to consumers who may be happy to earn a modest return and save with confidence for the future, rather than take higher risk for potential higher returns.

“Given the unpredictable policy space in the US, effects are felt across multiple stock indexes, with the UK’s FTSE 100 at its lowest point in a year yesterday.

“Further, if the unpredictable policy space in the US does not ease off quickly, it’s perhaps unfair and risky to push retail savers toward this level of investment risk, at a moment like this.”

One proposal popular with City bosses is for the annual cash allowances to be cut from £20,000 to just £4,000 – just a fifth of what it is currently.

There are four main types of ISA: cash, stocks and shares, lifetime ISAs, and innovative finance ISAs.

ISA limits were originally set at £7,000 when the savings accounts were introduced by Gordon Brown, the former Chancellor, in 1999. If the limit had increased with inflation, it would now be £13,165.

But the annual allowance was fixed at £20,000 from the 2017-18 tax year, with no requirement for savers to put money in stocks and shares instead of cash.

‘Capping cash entitlements would make the system more complicated’

Tom Selby, director of public policy at AJ Bell, said any reforms to ISAs should be focused on the long-term, ensuring any unnecessary barriers to investing are removed and people have the help and support they need to invest.

He said: “Sensible long-term reform shouldn’t be knocked off course by short-term market shocks – although clearly politically reducing cash allowances at a time when markets are tanking would prove challenging.

“That said, we think the focus here needs to be on simplifying ISAs and helping people better understand the long-term benefits of investing, rather than scaling back choice.

“Cash clearly has an important role to play in people’s financial planning and capping cash entitlements would make the system more complicated.”

Research by AJ Bell also suggested simply restricting cash ISAs would be “pretty ineffective” in encouraging more people to invest as many would simply look for cash options outside ISAs.

Separately, research agency Opinium found that just 49 per cent of independent financial advisers (IFAs) believe a reduction or removal of the current ISA allowance would prompt clients to move more money into investments.

‘We need to be mindful of added complexity’

Camilla Esmund, senior manager at interactive investor, said a core focus of this conversation needs to be the importance of ISA simplification.

She said: “Our research consistently shows that the ISA market is not well understood, and we need to be mindful of added complexity.

“The proliferation of ISA options may inadvertently discourage potential investors. By simplifying the choices, we can make ISAs more approachable and user-friendly for all.

“We want to ensure ISAs do not mirror the complexity that the UK’s pension system has accumulated over time, becoming difficult for individuals to navigate.”

Although Reeves is yet to confirm when these plans will take effect, it is unlikely any change to ISA allowance would come until at least April 2026, according to experts.

A Treasury spokesman said the Treasury does not comment on market speculation.