Chancellor Jeremy Hunt announced the launch of a British individual savings account (ISA) in his Budget today, but this decision has caused controversies in the industry.
Below, experts share their thoughts on the new UK ISA, which will entitle domestic retail investors to invest up to £5,000 tax-free every year in UK assets in addition to the already existing £20,000 allowance.
Aye
For Fraser Mackersie, fund manager at Unicorn Asset Management, the British ISA is a step towards addressing the lack of investment in UK companies. He stressed that all parties have recognised that the UK is not doing enough to encourage domestic investors to support British businesses, which puts London at risk of becoming a less attractive place to list.
He said: “UK small and mid-caps can be the engine room of the UK economy, companies that don’t just list here but employ here, spend here and create growth here. Keeping capital in the UK and directing UK tax breaks to support UK businesses rather than the economic benefit going overseas is positive.”
Mike O’Shea, chief executive of Premier Miton Investors, agreed, calling the British ISA a “crucial step” in starting to recapitalise British businesses and make the UK listing regime the “global capital of capital”.
Natalie Bell, fund manager within the Liontrust Economic Advantage Team, was also “delighted” to see “much needed support” for the UK equity market.
She believes the British ISA could be an important catalyst to reverse the multi-year trend of outflows out of the UK equity market.
Bell added: “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.”
No
Darius McDermott, managing director at Chelsea Financial Services, welcomed the initiative, but stressed that the government needs to do more. For instance, he suggested compelling UK pension funds to invest more in UK equities.
He said: “This budget was a missed opportunity to mandate institutions to boost our economy and markets. The bottom-line is that the British ISA is a good start, but it does not deliver the stimulus we need to boost flagging UK markets."
Rachael Griffin, tax and financial planning expert at Quilter, was sceptical on the benefits of the new UK ISA. She warned it raises “significant” implementation challenges and adds further complication to the “once-simple” ISA brand.
She explained: “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.
“Few people use their total ISA allowance in a given tax year. 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.”
Griffin also warned that the effectiveness of the UK ISA will depend on the uptake by the public and the response from UK companies. As a result, there is a “palpable risk” that it may not attract the intended level of investment or only benefit wealthier individuals.
She added: “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.”
Michael Summersgill, chief executive at AJ Bell, also believes that the British ISA is an “ill-conceived” and “politically motivated” decision that will not deliver on its objectives.
He highlighted that 50% of AJ Bell customers’ money in stocks and shares ISAs is already invested in UK assets. Therefore, he does not believe this new declination of the ISA will have any impact.
Summersgill added: “If the aim is to boost investment in UK companies, the answer lies elsewhere. For example, extending the existing AIM exemption from stamp duty and/or inheritance tax to a wider pool of UK assets would actually have a meaningful impact.”
Implications for investment companies
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), was rather positive on the new British ISA.
However, he called for all investment trusts to be eligible for the UK ISA, as those companies give savers access to hard-to-access assets such as private equity, infrastructure and property.
He concluded: “For any investor taking advantage of the new UK ISA, particularly those beginning their investment journey, investment companies can provide an excellent starting point. They have strong long-term performance, with the average investment company returning 158% over the last ten years.
“In addition, investment companies have boards of directors to look after shareholders’ interests and investors can attend AGMs, ask questions and vote, providing the ability to actively engage with their investments.”