Chancellor Rachel Reeves has paved the way for radical ISA simplification by confirming plans for a British ISA have been scrapped in today’s Budget.
The proposed British ISA would have handed savers an additional £5,000 of tax-free investing allowance on top of their usual £20,000 ISA allowance.
AJ Bell led opposition to the idea, warning a British ISA would add complexity and be ineffective in its aim of boosting UK capital markets.
Tom Selby, director of public policy at AJ Bell, comments: “The proposed British ISA was a political gimmick that was always doomed to fail in its objective of boosting investment in UK Plc. What’s more, it would have layered extra complexity on an already complicated ISA landscape. Rachel Reeves’ decision to ditch the ill-thought-out proposal is the right one and should pave the way for radical ISA simplification.
“Merging Cash and Stocks and Shares ISAs is the obvious starting point, a reform that would make life easier for investors and would-be investors and could provide a significant boost to UK capital markets at the same time. Over the longer term, the government should consider whether the best features of the current ISA regime can be combined into a single ISA product.
“The benefits of simplification for consumers and the UK economy could be substantial. In particular, merging Cash ISAs and Stocks and Shares ISAs – the two most popular ISA products in the UK – would make it easier for those holding money in Cash ISAs to transition towards long-term investing.
“HMRC data suggests there are around 3 million people in the UK with £20,000 or more invested in Cash ISAs and no money invested in Stocks and Shares ISAs. If just half of that money was invested for the long term, an additional £30 billion of investment would be unlocked. That is a conservative estimate and the actual figure may be far higher, given that HMRC’s data indicates many of those individuals hold a Cash ISA balance far in excess of £20,000.
“Given around half of ISA assets on AJ Bell’s platform are invested in UK companies or UK-focused funds, UK-based firms should disproportionately benefit as a result. From this basis, further reforms aimed at encouraging money to flow to UK business can be considered when economic circumstances allow.”
