Rachel Reeves is expected to swerve plans to cut the savings threshold for cash ISAs in her Mansion House speech next Tuesday, the Financial Times has reported.
Previously, it had been suggested that the Chancellor was looking to funnel more of the UK's household savings into the stock market by lowering the cash ISA threshold and increasing the amount that people could save tax-free in stocks and shares ISAs instead.
However, Downing Street insiders told the FT that the reforms are being paused to allow officials more time to consult on how they would be implemented.
The investment industry had mixed feelings.
Analysis by investment group IG found that since cash ISAs were introduced in 1999, real returns from UK shares have been seven times greater.
Michael Healy, UK managing director of IG Group (LSE:IGG), said the Chancellor's climb-down on cash ISA "is a big win for the defenders of a broken system".
He said £300 billion is currently "stagnating" in cash ISAs, "earning paltry returns and doing nothing for the British economy", while the cash ISAs are being supported by building societies, which were "depriving savers of any real long-term wealth creation and UK businesses of vital capital".
"It seems deeply wrong that we expect ordinary savers to subsidise building societies with cheap deposits, all under the guise of prudence," Healy explained.
"Cash ISAs are often positioned as the safe, sensible option for most people - but that message is holding back a generation of savers from building real, lasting wealth."
Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown, said: "It’s great that the government wants to further consult industry, rather than rushing into a change that would be a real blow for savers and may not get more people to invest anyway."
This decision should give the government the chance to see the impact of the other steps it’s taking to boost investment, such as recent changes to advice and guidance.