Savers were given a boost by the Chancellor with an increase in the allowance under tax-free ISAs to more than £10,000 a year.

The total annual allowance will rise from the current £7,200 limit to £10,200, taking effect for those aged 50 and over from this year and extending to everyone in 2010. Alistair Darling said the cash limit within the overall allowance would rise from £3,600 to £5,100.

The Chancellor said almost £290 billion had been saved in tax-free ISAs since their launch 10 years ago, with 18 million people having taken them out.

At present, savers can put up to £7,200 in equities or a combination of equities and cash, with all money held in an ISA growing free of tax.

Yesterday’s move marks the second ISA allowance increase since their introduction in the 1999 Budget to replace former tax-efficient savings vehicles PEPs and TESSAs.

The total allowance was increased last year from £7,000 to £7,200.

The new increase will offer welcome help to savers who have been hit by a series of hefty interest rate cuts by the Bank of England, which has left UK rates at an all-time historic low of 0.5 per cent.

Mr Darling also offered help to pensioners with “modest” savings who have been hit by the record low interest rates.

He unveiled plans to increase the capital disregard limit on Pension Credit from £6,000 to £10,000 from November, which will allow pensioners to have more in savings before their level of help under Pension Credits is reduced.

The decision will see the 5.5 million pensioner households with savings of less than £10,000 gain an extra £4 a week on average, according to the Chancellor.

The Association of British Insurers (ABI) welcomed the ISA allowance increase, although it does not come into effect until October 6 for those aged 50 or over and next April for everyone else.

Peter Vipond, the ABI’s director of taxation, said: “We have called for the ISA limit to be raised to this level and are pleased as this will help people save in a flexible product that addresses their lifetime needs.

“The ISA’s flexibility, in allowing both cash and equity investment, will be welcome by savers and should play a part in moving the UK to an economy led by investment.”