The UK government has dropped plans for a “British Isa” that would have channelled savers’ cash into London-listed stocks over concerns that it would “complicate” the investment market for individuals.
Two people close to the process said Labour had abandoned plans to push ahead with the new Individual Savings Account product drawn up by the last Conservative government, which would have allowed an extra £5,000 for UK-listed equities only.
“We are not planning to complicate the Isa landscape even further,” one government figure told the Financial Times.
The Treasury insisted that no final decision had been made, adding: “The government will provide further information on its plans for the British ISA in due course.”
The move marks a U-turn from before the general election, when a Labour spokesperson said the party had “no plans to drop the British Isa”.
The new product was drawn up by the previous government this year in an attempt to encourage savers to invest and help boost UK stocks, which have suffered from investors selling and opting for global shares in recent years.
The British Isa would have provided an additional tax-free amount for UK-listed equities, in addition to the current £20,000 annual allowance. Jeremy Hunt, then Tory chancellor, said in his March Budget that it would ensure savers “benefit from the growth of the most promising UK businesses”.
The Labour government’s decision comes after investment sites such as Hargreaves Lansdown and AJ Bell warned the Treasury that another Isa product would make investing more complicated for individuals and could even deter them from using the tax-free wrappers.
Cash Isas allow people to save money without incurring income tax on interest, while stocks and shares Isas shelter investors from income tax on dividends and capital gains tax when selling shares. There are several different versions, including the Innovative Isa and Junior Isas.
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”.
“We were crystal clear with the previous government that the British Isa was a mistake [and] that it would not work,” he added.
UK equities have come under pressure in recent years, as pension funds have slashed their exposure to domestic stocks and shifted investments into global equities, in search of higher returns.
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.
Dan Olley, chief executive of Hargreaves Lansdown, the UK’s biggest consumer investment site, said this year that it was “essential that we keep things as simple as possible”.
Summersgill previously said the government, which sets the Isa rules, should allow for one Isa product instead of several different versions, as “too much choice can lead to people feeling overwhelmed”.
This week HM Revenue & Customs, the UK tax agency, dropped a ban on investors holding portions of shares in tax-free Isas, in a move that should help channel more money into stocks.
This article was written by Jim Pickard and Emma Dunkley from The Financial Times and was legally licensed through the DiveMarketplace by Industry Dive. Please direct all licensing questions to legal@industrydive.com.