Savers received some rare good news when the Chancellor announced plans to increase the annual ISA allowance in line with inflation each year.

The Government has already announced plans to raise the amount people can save tax-free each year from £7,200 to £10,200, of which £5,100 can be held in cash.

The new threshold comes into force from the beginning of the new tax year on April 6 for all savers, with those aged over 50 already benefiting.

Alistair Darling said that going forward the annual allowance would rise in line with inflation each year.

Around 19 million people currently have an ISA, with savings in the accounts, which were introduced in 1999, totalling £270 billion.

Commentators predicted the move would mean ISA allowances would increase by around £1,000 to £11,200 within five years, based on inflation of around two per cent.

John Lawson, head of pensions policy at Standard Life, said: “This is a welcome announcement coming on the back of the increase in ISA limits this year.

“ISAs will assume greater importance for retirement funding, particularly among higher earners, as a result of restrictions to pensions tax relief first announced in the 2009 Budget.”

Kevin Mountford, head of banking at, said: “Increasing the ISA limit and allowing more people to save more in cash means more flexibility for people when choosing a home for their savings.

“However, the increase will be very small year-on-year so the incentive to save this extra amount is limited.”

Andrew Hagger, of, described the move as a “token gesture” that was likely to cost providers more to administer than it will actually deliver to beleaguered savers.

He said if the cash element was increased by 2.5 per cent next year it would rise from £5,100 to £5,227.50.

He said not only was this a confusing level for consumers, but the increase was only likely to make people 76p better off compared with if they had invested the money in a standard savings account.