Ordinary families will not have to pay a single penny of tax on their savings , George Osborne announced today . The Chancellor said he was abolishing all tax on the first £1,000 of interest savers earn from their nest eggs . The move will benefit 17 million who have put aside up to around £35,000 . Until now , people earning less than £42,700 have had to pay 20 per cent tax on the interest they get from their savings - while those on up to £150,000 have been taxed at 40 per cent . Today 's announcement means 95 per cent of savers will no longer pay any tax on their savings . Mr Osborne said savers have paid tax already on the money when they earned it – they should n't have to pay it again . He said it meant 'tax free banking for almost the entire population ’ . Scroll down for video . The Chancellor said he was abolishing all tax on the first £1,000 of interest savers earn from their nest eggs . The move will benefit 17 million who have put aside up to around £35,000 . He told MPs : ‘ With our new Personal Savings Allowance , 17 million people will see the tax on their savings not just cut , but abolished . ‘ An entire system of tax collection can be scrapped . At a stroke we create tax free banking for almost the entire population. ’ It is the latest in a series of measures designed to woo pensioners , who are more likely to vote and save . Mr Osborne also confirmed plans to let five million OAPs cash in their retirement deals to help people stuck on rip-off annuity rates . Mr Osborne 's policy will give those who have already taken out an annuity the right to cash it in for a lump sum from April next year . He told MPs : 'We will give five million pensioners access to their annuity . For many an annuity is the right product , but for some it makes sense to access their annuity now . 'So we ’ re changing the law to make that possible . From next year the punitive tax charge of at least 55 % will be abolished . Tax will be applied only at the marginal rate . 'And we ’ ll consult to ensure pensioners get the right guidance and advice . So freedom for five million people with an annuity. ’ Until now , people earning less than £42,700 have had to pay 20 per cent tax on the interest they get from their savings - while those on up to £150,000 have been taxed at 40 per cent . Today ’ s announcements offer welcome relief to millions of savers who have suffered dismal rates on Isas , savings accounts and annuities since the Bank of England base rate was slashed to 0.5 per cent just over six years ago . Families have lost as much as £5,000 since rates were cut , according to a recent estimates . The average rate paid on instant access bank accounts has fallen from 3.1 per cent in September 2008 to just 0.78 per cent now . Average Isa rates have also fallen from 1.99 per cent in March 2009 to 1.45 per cent . Savers will also benefit from a 'radically more flexible Isa ' , which will allow savers to take money out of their Isa and put it back later on in the year without losing any of their tax free entitlement . Mr Osborne said : ‘ We will introduce a radically more Flexible ISA . In two weeks ’ time the changes I ’ ve already made mean people will be able to put £15,240 into an ISA . 'But if you take that money out – you lose your tax free entitlement , and so can ’ t put it back in . 'This restricts what people can do with their own savings – but I believe people should be trusted with their hard earned money . 'With the fully Flexible ISA people will have complete freedom to take money out , and put it back in later in the year , without losing any of their tax-free entitlement . 'It will be available from this autumn and we will also expand the range of investments that are eligible . '
No tax on the first £1,000 of interest savers earn from their nest eggs . Announcement means 95 % of savers will no longer pay any tax on savings . Comment: Osborne said it meant 'tax free banking for almost the entire population ’