The Chancellor Rachel Reeves has killed off plans for a “British ISA” that would have channelled savers’ cash into businesses whose shares are listed on London stock markets.
The scheme, which was drawn up by her Conservative predecessor Jeremy Hunt, would have given British savers tax perks for supporting British businesses.
However, the scheme has now been dropped by Labour following complaints by City finance experts that it would offer little benefit to investors and added a new layer of complexity to investing through Individual Savings Accounts.
Current rules allow Britons to invest £20,000 a year into an ISA to be invested with any returns free of tax. The British ISA would have allowed a further annual investment of £5,000 provided this money was invested by UK listed firms.
When Mr Hunt announced the scheme in his March Budget, he said it would ensure savers “benefit from the growth of the most promising UK businesses”.
However, a number of City investment firms, including Hargreaves Lansdown and AJ Bell, warned the Treasury that another ISA product would make investing more complicated and could even deter people from investing through ISAs at all.
Dan Olley, chief executive officer, at Hargreaves Lansdown, said: ‘’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.”
Michael Summersgill, chief executive of AJ Bell, welcomed the decision to drop the plans, saying: “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 credit for consigning this ill-conceived idea to the policy dustbin and will hopefully now take a more pragmatic, long-term approach to Isa reform focused on radical simplification,” he added.
Richard Wilson, chief executive of Interactive Investor, said the investment site was “glad to see the back of the British ISA discussion”.
He said: “We were crystal clear with the previous government that the British Isa was a mistake [and] that it would not work.”
Investment in businesses listed on the London stock markets has fallen away in recent years because British savers have looked overseas, particularly the USA, for higher returns linked to fast growing businesses, such as tech firms.
Retail investors have pulled out about £54bn since 2016, according to recent data from the Investment Association, a trade body.
Although the government has dropped plans for a British ISA, chancellor Rachel Reeves has set out a blueprint that could support UK equities by funnelling more defined contribution pension money into a wider range of UK assets.
But investment sites think the government needs to go further to simplify the ISA market to encourage savers to use the tax-free wrappers for investment.
James Carter, Head of Platform Product Policy, Fidelity International, said: “Whilst the proposed British ISA would have achieved an extension of the aggregate amount consumers could save and invest through ISAs, it would have proliferated the complexity of the ISA product set.
“Complexity destroys confidence, leaving many individuals missing out on vital opportunities to strengthen both their short and long-term financial position.”
