Chancellor Jeremy Hunt has unveiled plans to create a new £5,000 British ISA in a bid to encourage more investment into UK companies and kickstart growth.
The new British ISA is doomed to fail in those objectives – UK retail investors are already putting 50% of their ISA investments into UK assets so the additional allowance will not change investor behaviour.
The additional £5,000 allowance will only benefit the small minority of investors who already max out on their annual ISA allowance – everyone else can already invest more in UK companies through their existing stocks and shares ISA allowance if they want to.
Michael Summersgill, chief executive at AJ Bell, comments: “Increasing investment into UK companies is a laudable aim, but this ill-conceived, politically motivated decision will simply not achieve that objective.
“50% of the money our customers currently invest through their stocks and shares ISAs is invested into UK assets, so this new allowance will have no impact whatsoever on their investment behaviour.
“A tiny minority of people max out their £20,000 ISA allowance each year, but these are the only ones that will see any benefit from the additional British ISA allowance. In the context of the £2tn+ UK stock market, any additional investment generated by these investors through the British ISA will be a rounding error.
“For most people, the British ISA only adds an unwelcome complexity. People will now have another option to evaluate when deciding which ISA type is right for them. Rather than complicating ISAs, the Government should be making it easier for people to invest by simplifying the ISA landscape. Our research shows that complexity puts people off saving and investing for the long-term, so throwing another ISA in the mix, alongside the six others that already exist, will inevitably add to this problem.
“The aim is laudable, but the British ISA is simply the wrong way to achieve it. If the aim is to boost investment in UK companies, the answer lies elsewhere. For example, extending the existing AIM exemption from stamp duty and/or inheritance tax to a wider pool of UK assets would actually have a meaningful impact.”
The case for long-term simplification
“AJ Bell is committed to campaigning for long-term simplification of the UK savings landscape. Creating another new form of ISA with different restrictions and a separate limit is the opposite of simplification and runs counter to earlier Treasury efforts to strip back ISA complexity.
“We remain convinced that stripping back this complexity and combining the best features of ISAs within a single ‘One ISA’ product would represent transformative, consumer-focused reform. If government can combine simple products with improved help for consumers through the joint FCA/Treasury Advice Guidance Boundary review, the UK will have strong foundations upon which to build a culture of saving and investing for the long-term.”
