In his Budget speech, the Chancellor revealed plans for a new British ISA allowing extra £5k investment for new investment in UK assets on top of existing ISA allowances to come from NS&I.
The industry has been reacting to this piece of Budget news on ISAs as follows:
Rachael Griffin, tax and financial planning expert at Quilter said:
“The government has gone ahead with opening a consultation into the creation of a British ISA, despite receiving criticism before the budget. While the measure is touted as a boon for invigorating the UK stock market by encouraging investment in domestic equities, the introduction of this new ISA allowance raises significant implementation challenges and serves to further complicate the once-simple ISA brand.
The ISA is a simple idea, a tax efficient place to grow your wealth, however, with various additions over the years it has now become a confusing area of personal finance. Faced with the complexities of this consumers tend to just opt for what they know and that almost always is just a cash ISA.
So few people use their total ISA allowance in a given tax year too so the allure of £5,000 more is only appealing to much higher net worth people. The reality is we need to better incentivise the millions languishing in cash ISA accounts to be put to work in the stock market.
Moreover, the effectiveness of this initiative is contingent upon its uptake by the public and the response from UK companies. There is a palpable risk that the ISA may not attract the intended level of investment, or only primarily benefit wealthier individuals.
While the British Isa is presented as a strategic move to bolster the UK stock market and economy, it is fraught with potential pitfalls and may not address the root causes of the challenges facing the UK’s financial sector. The measure is likely a politically motivated stunt ahead of upcoming elections, rather than a well-considered strategy aimed at sustainable economic growth.”
Steven Cameron, Pensions Director at Aegon said:
“The new British ISA will appeal to those who currently max out their ISA limits, providing scope for an extra £5k tax-free saving. It will also offer transparency, appealing to those who wish to be certain their investment is staying within the UK. It will be important the forthcoming consultation creates an unambiguous definition of what qualifies as a UK investment within a ‘British ISA’.
“Investors should however be mindful about putting all their ‘eggs in one basket’. Diversifying across different asset types and geographical locations can be an important way of managing investment risk, something which should be emphasised to potential investors.
“The creation of the British ISA comes alongside a push to get UK defined contribution pension schemes to invest more in the UK, including in private assets. The Chancellor clearly wants to take every opportunity to use all types of savings and investments to boost UK economic growth.”
Sam Dewes, Tax Partner at HW Fisher added: “The Chancellor has decided to change the rules for ISAs to encourage active investment in Britain to help drive the UK economy and boost the UK stock markets. He has introduced a British ISA allowance of £5,000 per year which will be sheltered from UK tax. Hunt has also said he will review investments by pension funds to ensure that he is happy with the levels of investment in the UK.”
Mike Ambery, Retirement Savings Director at Standard Life, part of Phoenix Group said: “ISAs represent a significant pool of savings and the Chancellor is hoping he can encourage people to buy British. The big question is whether today’s incentive will be enough to encourage people to invest at home. Last year around 12 million people saved nearly £70bn into ISAs and the total value of funds stood at around £700bn. Rising interest rates have made the returns on cash ISAs much more attractive and among those who are willing to invest, there are many markets to choose from with the US in particular having performed strongly in recent years. One factor working in the Chancellor’s favour is the growing number of people with cash savings outside of an ISA many of who will now be paying tax on the interest. The additional £5,000 allowance might be enough to tempt some of them to invest and the UK is home to many excellent companies.
“As with the wider ‘Mansion House’ scheme, the emphasis on UK growth has the potential to benefit us all but it’s crucial that good outcomes for savers remain at the centre of any investment decisions irrespective of the investment type selected. As ever, maintaining a diversified portfolio of savings and investments is a sensible way to work towards both short and longer-term financial goals.”
Claire Trott, Divisional Director of Retirement and Holistic Planning at St. James’s Place comments on the announcement of a new “British Isa” in today’s Spring Budget
“We welcome all opportunities for tax free investment with the ‘British ISA’ increasing the overall ISA allowance. However, it comes with restrictions on where you can invest which may be a turn off for some. It also adds to the complexity of something that used to be simple, we now have multiple ISAs with various restrictions, which will probably mean more need for financial advice.”
Justin Corliss, technical manager at Royal London, said: “To what extent the new increased ISA allowance will help UK listed companies attract greater investment remains to be seen. However, an additional £5,000 to the savings limit, taking it to £25,000, will be welcomed by those who are able to use their full ISA allowance. However, for the average saver, contributions are already well below the current limit, so the vast majority of people won’t see any difference.”
Tom Minnikin, partner at Forbes Dawson, said: “The introduction of a new “UK ISA” is likely to be welcomed by savers, as it marks the first increase in the ISA allowance since 2017. However, to be truly transformative this needs to be coupled with greater flexibility in the ISA system.
“The Chancellor unveiled a new allowance of £5,000 per annum for UK-focused investments. The government will consult on the details, but once introduced the £5,000 limit will apply in addition to the existing £20,000 ISA allowance.
“The increased offer is a positive step, both for savers and British businesses. However, there are other ways in which the ISA system could be improved. For example, at present it can be difficult to switch between stocks and shares ISAs and cash ISAs. A more flexible ISA that allowed savers to move their investments in and out of the two products seamlessly would be a better solution all round.
“Evidence shows that the take-up of stocks and shares ISAs is a lot lower than cash ISAs. Having a single combined ISA system might create a more balanced split and lead to greater overall investment in the UK.”
Ken Wotton, managing director for public equity at Gresham House, has commented: “We welcome the government’s forward-looking decision to introduce the British ISA, a significant step towards aligning the interests of British savers with the vast potential of UK-based growth companies. This initiative not only opens up a tax-free allowance for investment in UK-listed equities but also strengthens the foundation of our public markets and economic growth. It is a move that promises to invigorate investment flows into small and growth-oriented companies, which are currently undervalued compared to their counterparts.
“The British ISA represents a pivotal moment for investors to actively contribute to the UK’s economic success while benefiting from attractive valuations. This policy could serve as a catalyst for closing the valuation gap in the UK market, offering a unique opportunity for taxpayers to participate in and benefit from the success of high-quality companies.”
Mike O’Shea, Chief Executive of Premier Miton Investors said: “We’re pleased the Chancellor and the Government have announced the introduction of the Great British ISA in the Budget statement today.
“Premier Miton Investors began calling for the GB ISA in September last year, because ensuring companies have access to the capital they need will encourage them to scale up and list here in the UK. The GB ISA is a crucial step in starting to recapitalise British businesses, and make the UK listing regime the global capital of capital. We look forward to further details on the new ISA wrapper in due course.”
George Lagarias, Cheif Economist at Mazars said: “When all is said and done, this was a pre-election budget aimed towards an internal audience, not international investors. A completely realistic and sensible approach from a political perspective, to be sure, but one that leaves questions as to whether overseas institutional money could be better incentivised to flow into the UK.
The British ISA especially, is an intriguing notion. It is one thing to incentivise investing in local smaller businesses based in AIM, and it is another to single out FTSE 100 stocks, who make most of their profits overseas. On the one hand, flows into British assets by local investors could indeed attract other overseas investors too. This could help close the post-Brexit valuation gap with other developed markets and incentivise other companies to list in the LSE. On the other, long term institutional investors could become more sceptical. They could consider that a future government, a scenario which may not be too far off, may choose to abolish that subsidy, or expand the definition, or incorporate it in the regular ISA. Then those inflows could easily turn into outflows.”
Natalie Bell, fund manager within the Liontrust Economic Advantage Team said in response to the launch of a British ISA, as announced by Chancellor Jeremy Hunt in today’s Spring Budget:
“Liontrust’s Economic Advantage team are delighted that the Chancellor has provided much needed support for the UK equity market through the announcement of a British ISA (BRISA) in today’s budget. We believe the BRISA will be an important catalyst to help reverse the trend of persistent outflows experienced by UK equity markets for a number of years. It sends a vital message that the Government stands ready to back British companies, directing a proportion of taxpayer-subsidised investment towards improving employment, growth and productivity here in the UK.
“We hope that this will be supplemented in due course by other important changes, such as encouraging more domestic investment by pension funds and reviewing the significant ‘red tape’ that comes with being listed to remove anything unnecessarily burdensome. Such initiatives would go a long way towards levelling the playing field for the UK as a primary stock market listing venue on the world stage.”
