The Government has presided over a collapse in the savings culture by repeatedly slashing tax incentives for savers, Tories claimed today.

The criticism comes after ministers announced a shake-up of tax-free ISAs, reducing the annual savings limit for a maxi-ISA to £5,000 from £7,000 in 2006.

Tax credits and dividends paid on shares held in ISAs have also been abolished.

At Commons question time, Tory Peter Luff (Mid Worcestershire) accused the Government of ''disregarding'' a collapse in the savings culture. This was caused by ''endless fiddling with the tax free savings schemes, the £5 billion personal pension raid and the massive expansion of means-testing,'' he said.

Dismissing this as ''absolutely wrong'', Treasury Financial Secretary Ruth Kelly said ISAs were ''far more popular'' than previous products and one in three people now saved in them.

She later conceded that up to three million people could be seriously undersaving.

But the Government was not complacent and was focusing on new products and an overhaul of regulation and taxation to aid informed choices.

Labour's James Plaskitt (Warwick and Leamington), a Treasury Select Committee member, said the savings industry must take some responsibility.

The committee had ''uncovered endless examples of mis-selling, lack of transparency, of opaque products, over-complexity and rip-off commission structures''.

Ms Kelly said the Government was tackling this by ''moving consumer protection up from the sales process more onto the regulation of products''.

This would enable people, ''even in their lunch hour'', to purchase a stakeholder product to suit their saving needs.

Mark Prisk, for Tories, said Chancellor Gordon Brown had repeatedly slashed tax incentives for savers.

''He has now removed tax credits for ISAs, costing savers another £250 million,'' Mr Prisk added.

''Given that the savings ratio has already halved since 1997 why are you yet again penalising savers whether they are at work or at lunch?''

Ms Kelly hit back: ''The savings ratio varies with the economic cycle and at times of boom and bust the savings ratio is artificially inflated as people protect themselves against rising unemployment levels.''

She reiterated that the Government was determined to tackle undersaving.