The Government is set to scrap the Conservative-proposed British ISA after the Labour Party previously backed the scheme during its election campaign trail.
A report in the Financial Times quoted a Government official stating that it doesn’t wish to add any further complexity to the ISA landscape by going ahead with the British ISA.
However, during the Labour campaign trail, reports suggested the party had no plans to drop the UK ISA, also known as the British ISA, which was first proposed by the Conservatives in the March 2024 Budget.
As part of the proposals to encourage more investment in UK assets, the British ISA was expected to give people an additional £5,000 annual allowance (on top of the current £20,000 ISA allowance) for investment in UK equities.
UK companies were defined as ordinary shares in companies incorporated in the UK and that are either listed on a UK-recognised stock exchange or admitted to trading on a UK-recognised stock exchange.
As part of the accompanying UK ISA consultation, it stated: “This approach would enable the UK ISA to support a range of UK companies, from small companies trading on AIM, to medium or large UK companies that are listed on the London Stock Exchange.”
While some experts and commentators welcomed the dawn of another ISA allowance targeting UK growth, others suggested it would add to an already complex ISA landscape.
Simple ISA to complex ISA landscape
In light of the new reports that the Labour Party is set to U-turn on the British ISA idea, experts have welcomed the expected move.
Tim Hogg, director of consumer group Fairer Finance, said: “The British ISA would have increased the ability of the people with the largest amounts of savings to make more tax-free investments. But it wasn’t obvious that further increasing the complexity of ISAs was a good intervention. After all, navigating ISAs can already feel like a minefield for consumers.
“The aim of the British ISA was questionable, as it’s unclear if investing in the allowed assets would have led to higher or lower returns for investors. In any case, it’s not clear that the British ISA would have delivered significant further investment into the UK, as investors may have rebalanced their investments rather than invested more of their cash.”
James Carter, head of platform product policy at Fidelity International, said: “While 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.
“We know that many people find it difficult to identify which products best suit their saving or investment needs and struggle to manage their savings across different ISA types. New financial products must be developed with consumers’ needs at their core.”
This was echoed by Shaun Moore, tax and financial planning expert at Quilter, who said: “Labour’s reported scrapping of plans to create a British ISA is a sensible move. 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. If the British ISA did see the light of day, it would have further muddied the water.”
And for Michael Summersgill, AJ Bell’s CEO, “the UK ISA was a political gimmick that was doomed to fail in its objective of boosting investment in UK plc”.
He said: “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.”
Boosted ISA allowance and merging of ISA products
Summersgill added that instead, the Government should merge cash and stocks and shares ISAs as an “obvious starting point”.
He suggested that over the longer term, the Government should consider whether the best features of the current ISA regime can be combined into a single ISA product.
This is echoed by Carter, who said: “Fidelity continues to believe that simplification is needed and that there is an opportunity to support consumers to transition from a cash savings culture into longer-term investing. This could be achieved by combining stocks and shares and cash ISA products as well as improving the ease of transfers. Short-term needs are well-served, but it leads to consumers holding large cash balances for too long, missing out on higher investment returns.”
Meanwhile, another suggestion by Summersgill is increasing the overall ISA allowance from £20,000 to £25,000, which “should naturally drive more money towards UK plc, while creating a genuine incentive to invest in UK assets”. He added that scrapping stamp duty on UK investments “would also help achieve this aim”.
