George Osborne's prize rabbit from the hat was the Personal Savings Allowance, which will effectively mean 95 per cent of savers no longer paying any tax on the interest from their savings.

The radical change received a mixed welcome from the financial industry, which has spent the past year promoting the new £15,000 limit on Individual Savings Accounts. From April 2016, savings accounts will no longer have interest deducted automatically at source, undermining the purpose of Isas.

Mr Osborne also announced that Isas will become completely flexible, with money withdrawn able to be topped up again within the same year without losing tax-free status. But that reform will only benefit people who save higher amounts, and the flexibility will lose any unique value when the new allowance comes in.

The PSA will from April 2016 allow basic rate taxpayers to earn £1,000 of savings interest tax-free, while higher-rate taxpayers will be able to earn £500. It will not be available to top-rate payers. That means the maximum benefit is £200 to any taxpayer.

A basic rate taxpayer will now be able to save up to £70,000 in today's top-paying easy access accounts without paying any interest, and a higher rate payer £35,000, according to Moneysupermarket.com.

In the coming tax year, the Isa allowance for tax-free saving is £15,240. It can be used partially or wholly for stocks and shares investing, but for most people that confers little tax benefit. The chancellor said the Isa regime would be extended in due course to cover other types of investment, likely to be peer-to-peer lending following a consultation currently under way.

According to Santander, around two thirds of adults or 34 million people have a taxable savings account in the UK, generating an estimated £600 million in tax revenues for the Treasury.

Too much tax is being paid on up to £85 billion of savings and investments according to an analysis of national statistics by financial services provider NFU Mutual. It says more than five million adults pay tax on their savings accounts yet don't have any cash or investments in an Isa. The average Isa account balance is around £13,000 - well within the limit for subscriptions in a single tax year.

David Lascelles, savings expert at Scottish Widows, said: "Any move that encourages more people to save for the long term is a positive step. Our research suggests that the increased flexibilities around savings introduced in the past year have had the desired effect, as the number of savers has risen to 74per cent from 63per cent in 2010."

Dr Ros Altmann, the government's tsar for older people, said even if interest rates on savings accounts returned to 4per cent in future, someone with £25,000 of savings would still pay no tax on their interest. She added: "At the moment, banks and building societies have to deduct 20% tax from all interest income before it is paid out and non-taxpayers have to reclaim the tax withheld. In many cases, this money is never actually claimed as the recipients do not know they have to do so. Pensioners are one of the groups least likely to reclaim the tax, so this will be of benefit to them."

But Maike Currie, a director at Fidelity Personal Investing, said: "Isas are highly popular with the public, and we have always maintained that no sensible government will interfere with these savings vehicles too much - they're one of the few really trusted products within financial services. They're popular, generous and simple to understand. What Chancellor George Osborne has effectively done is add some extra layers of complication to this savings vehicle, with few real benefits. Sometimes too much choice can be a bad thing."

She said being allowed to move money in and out of an Isa looked attractive. "However, unless you were using your full Isa allowance each year, this new found flexibility will make very little difference to you as you will still have some of your ISA allowance left to use. "

The Building Societies Association's head of mortgage policy Paul Broadhead said: "Over the last 20 years, we have moved from an economy based on saving to one based on borrowing. People need to be rewarded for thrift, to know that the government values those who look after their own futures and help out savers at a time of low rates, whether they are saving for a deposit for their first home or for a rainy day."

He added: "Given the pressures to keep the bank base rate at 0.5per cent, the BSA pressed the government to scrap savings interest taxation two years ago...the chancellor has come round to our way of thinking, just in time for the last budget before the general election."

Yvonne Braun, head of long-term savings policy at the Association of British Insurers, said: "These measures should help re-build a savings culture in the UK, which is critical for people's financial wellbeing. Helping people build up their savings is the best way to make sure they really have freedom and choice in retirement."

But Stephen Ford , head of investment management at Brewin Dolphin, commented: "Cash Isas were pointless before, but now they are pointless and unworkable. You'd need to have cash savings of more than £100,000 at 1per cent interest to need to shelter any of it from the taxman, while the plan to allow you to take money in and out in any tax year looks like an administrative nightmare."