The Labour government is expected to abandon plans for a ‘British Isa,’ a scheme initially proposed by the previous Conservative administration to encourage investment in UK stocks.
The move comes amid concerns that the initiative would complicate the individual savings account (Isa) market rather than effectively support UK equities.
The ‘British Isa’ was announced by former Chancellor Jeremy Hunt in his March budget as a measure to promote investment in domestic stocks, offering a tax-free allowance of up to £5,000 in UK shares on top of the existing £20,000 Isa allowance. The proposal aimed to address worries about the valuation gap between UK and US-listed companies and the relatively low level of retail investment in equities on the London Stock Exchange.
However, the policy faced criticism from industry players who argued that it would overcomplicate the investment landscape. Leading DIY investment platforms, including AJ Bell and Hargreaves Lansdown, voiced concerns that the ‘British Isa’ could deter potential investors from using Isas due to its added complexity. Reports of the government’s decision to scrap the policy were first published by the Financial Times.
Michael Summersgill, Chief Executive of AJ Bell, welcomed the decision, stating: “The UK Isa was a political gimmick that was doomed to fail in its objective of boosting investment in UK plc. The new government deserves huge credit for consigning this ill-conceived idea to the policy dustbin and will hopefully now take a more sensible, long-term approach to Isa reform than their predecessors, focused on simplification for the benefit of consumers.”
Summersgill pointed to data from HM Revenue & Customs indicating that three million people have £20,000 or more invested in cash Isas but hold no investments in stocks and shares Isas. He suggested that diverting even half of these funds into shares could generate over £30 billion in investment for UK companies. AJ Bell advocates for merging cash and equity Isas into a simpler, unified scheme, encouraging the millions of cash savers to consider equity investments.
Dan Olley, Chief Executive of Hargreaves Lansdown, also praised the government’s decision, emphasising the importance of simplicity in encouraging people to start investing. “We’re pleased that the government will not be pursuing this because simplicity is key when it comes to getting people to start investing. The UK Isa would have added complexity with little real benefit for many,” Olley said.
He further highlighted the importance of starting investments early to benefit from compound growth, noting that many people lack the confidence or time to invest, which remains a significant challenge.
Despite reports suggesting the scrapping of the ‘British Isa,’ a Treasury spokesperson maintained that no final decisions have been made: “The government will provide further information on its plans for the British Isa in due course.”
The decision to drop the ‘British Isa’ reflects a broader move towards simplifying financial products and encouraging long-term investment in UK companies. Industry leaders and investment platforms are hopeful that the Labour government will pursue Isa reforms that prioritise consumer benefits and accessibility, fostering a more straightforward route to investing in the UK market.