Peer to peer lending brings together savers and borrowers, cutting out middle men such as banks. There is increasing choice in the peer to peer market, with larger groups such as Funding Circle, Rate Setter and Zopa, now competing with Lending Works, Invest and Fund, and Landbay.

The relatively high rates of interest available make it a popular choice and the latest figures from industry association the P2PFA show the industry lent more than £459 million in the first quarter of 2015, taking cumulative lending to more than £2.6 billion.

The industry has campaigned for peer to peer lending to be an allowable Isa investment. The Budget document said: ‘The Government will introduce the innovative finance Isa for loans arranged via a P2P platform, from 6 April 2016 and has today published a public consultation on whether to extend the list of Isa eligible investments to include debt securities and equity offered via a crowd funding platform.’

Nick Harding, CEO of Lending Works said: “We are pleased that peer-to-peer lending will be included in the new Innovative Finance ISA from 6 April 2016. However, it’s a shame that the Treasury and the FCA have decided against the creation of a Lending ISA.

“Separating peer-to-peer lending into its own ISA wrapper would have enabled the industry to ensure that both the rewards and the risks of peer-to-peer lending are clearly defined and communicated to our customers. This is what 95% of peer-to-peer lenders were calling for, alongside us and our industry peers.

Christine Farnish, chair of the P2PFA said: “We are absolutely delighted by today’s decision. The creation of the Innovative Finance ISA will encourage more people to benefit from the fair deal that P2P lenders offer without getting confused between stocks and shares, P2P lending or cash savings. P2P lending differs significantly from both equity investments and from bank deposits. We urge caution not to rush including riskier forms of crowdfunding as part of this new ISA. It is a good day for investors and our sector.”