Jason Hollands, Managing Director of Bestinvest by Evelyn Partners, the online investment platform, has shared his thoughts on the future of ISAs.
“If reports are correct that the Government has decided to pause plans to cut back the Cash ISA allowance, this is welcome news for savers and a victory for the lobbying efforts of banks and building societies, as well as personal finance press. The rationale behind limiting Cash ISAs – which was expected to be a feature of the Chancellor’s Mansion House speech next week – was that it would somehow drive people into investing in stocks and shares instead and boost the UK economy, was pretty questionable.
“While I would certainly encourage more people who have excess cash, which they are unlikely to need access to in the near future, to invest it for the longer-term, simply restricting people’s ability to save cash tax-efficiently is unlikely to drive a fundamental change of behaviour. The only certainty behind such a move would have been to expose more of their hard-earned savings to tax. Investing in the stock market isn’t appropriate for everyone, particularly very cautious and risk averse individuals who need a rainy-day cash buffer. Cutting the Cash ISA allowance now when saving rates remain relatively high and the meagre annual Personal Savings Allowance has remained frozen since inception, would have amounted to little more than a tax grab.
“If we are to get more people investing in Stocks & Shares ISAs, particularly in UK equites, I would urge the Chancellor to consider more positive, constructive moves such as scrapping stamp duty on UK share purchases in ISAs, so they live up to the tax-free promise in full.
“Despite the apparent retreat on Cash ISAs, this does not mean ISAs are out of the woods yet. With the Government seeing ISAs as a way to boost UK growth, the Chancellor may well be very receptive to the lobbying by some in the City who argue Stocks & Shares ISAs should be refocused on UK equities, either wholly or by requiring a minimum allocation.
“The FTSE 100 may be tantalising close to breaking through 9,000 points for the first time ever, but the UK equity market faces serious challenges with relentless outflows from investors, a dramatic shrinkage in the number of constituents as a result of buyouts, a steady stream of companies moving their listings to the US and a dearth of IPOs. In the first half of this year, IPOs in London slumped to the lowest level in 30-years with a meagre £160 million raised across five listings. This is bad news for City firms that earn a living from advising UK listed businesses, transactions and research, as well as UK equity managers, which ultimately generate tax revenues for the UK Treasury. It is therefore easy to see that the Government – which has already slipped reserve powers to introduce mandatory asset allocation requirements into the pensions bill – may find the argument that the tax-incentives provided by ISAs should also require some commitment to back UK assets in return. Could ISAs, launched under Tony Blair’s New Labour, end up more like the Personal Equity Plans they replaced (which required most of the allowance to be invested in UK/EU ‘qualifying funds’)? I wouldn’t rule it out.
“Finally, the drip-drip of speculation around not just cash ISAs but pensions and the tax environment and pensions as whole is not helpful when it comes to making financial decisions and plans. It looks like we are in for a summer of guessing where tax rises will land, with many savers weighing up potentially important decisions while awaiting clarity at the Budget.”
