Isas U-turn and cash for the young

The chancellor cheered up Britain's savers by announcing a stay of execution for higher Isa allowances and a boost for the new child trust funds, due to be launched in April.

Gordon Brown also unveiled plans to extend the government's "saving gateway" project aimed at the less well-off, in which the government matches pound-for-pound the money individuals pay into special US-style accounts.

With a pensions crisis looming and a huge "savings gap", the government has been under pressure to find ways of encouraging more people to save.

Launched in 1999 as a replacement for Peps and Tessas, tax-friendly Isas have proved a big success, with more than £150bn invested in them.

There had been plans to cut the maximum amount people can invest in an equity Isa from £7,000 to £5,000 a year, and the limits for popular cash Isas from £3,000 to £1,000, from April 2006. But yesterday the chancellor said he would be consulting on extending the higher Isa limits until 2009.

Banks and building societies were delighted by what some described as a U-turn.

They were also pleased to discover Mr Brown is planning bigger than expected top-up payments into the government's new child trust funds, which will see many young people getting a £1,000 handout. Under the scheme, every child born after August 31 2002 will be awarded a cash payment at birth. For most children this will be £250, and for children from the poorest third of families it will be £500.

A further payment will be made on the child's seventh birthday, and Mr Brown yesterday revealed he was proposing this should also be £250 - or £500 for children from lower income families.

Children's savings specialist Family Investments said a child receiving two government payments of £500 would, at 18, have a fund worth £2,190, assuming annual investment growth of 7%.