Investment Association warns UK government over Isa reforms

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The UK’s Investment Association has written to the Treasury to warn against a possible overhaul of the Isa regime, arguing that there are better ways to encourage people to invest.

The investment body, which represents firms with more than £10tn of assets in total, has flagged to chancellor Rachel Reeves that potential changes to Britain’s tax-free Isa products in next week’s Budget could fall short of achieving the government’s aim of getting more cash into London-listed stocks.

The Financial Times revealed that the Treasury was considering cutting the annual cash allowance from £20,000 to £12,000, in an attempt to entice more savers to put their money into investments and funnel more money into the UK economy.

The government is also in talks with investment brokers about a voluntary agreement, so companies such as Hargreaves Lansdown, Interactive Investor and AJ Bell could offer “ready made” stocks-and-shares Isas with a minimum allocation of about 20 per cent to UK equities.

But people close to the IA said a proper consultation with the industry should be launched to discuss such sweeping changes, given that other initiatives could yield better results, including a government-backed retail investment campaign to encourage individuals to invest.

The IA, which represents asset managers as well as investment sites, said: “Any changes to the Isa regime need to prioritise simplicity and good outcomes for investors, while remaining commercially viable for firms to ensure sufficient uptake and long-term success.”

The comments come as parts of the industry push back against the potential changes to the Isa regime.

Michael Summersgill, chief executive of AJ Bell, told the FT: “The Isa reform ideas on the table have been conjured up in a Whitehall brainstorming session and would not pass muster in a City boardroom.

“Over 20mn people across the UK use Isas and government hopes to encourage many more to follow in their footsteps. They deserve better than a policy plan scribbled on a napkin with little or no serious long-term planning or strategy.”

He added that the government should instead “go back to the drawing board” and consult with the industry.

Other investment sites said they were concerned about offering ready-made Isas with a set 20 per cent allocation to the UK, as allocations tend to change to meet investors’ risk appetites.

However, Martin Gilbert, chair of Revolut and founder of Aberdeen Asset Management, has supported the government’s initiatives, adding that it should force investors using stocks-and-shares Isas into UK companies.

“I’m a firm convert that we should still have the cash Isa, but it should be limited,” he told the FT. “And if the government is giving us tax relief they may as well force us to put it in British shares, rather than [a global] tracker fund.”

The Treasury said: “This government’s number one priority is growth and putting more money in people’s pockets. We want to get the balance right on ISAs, protecting small cash savers while helping people’s money work harder for them and backing British businesses.”