Will the Investment Savings Account (ISA) in Britain move forward post the upcoming general election?
The British ISA, an additional £5,000 tax-free allowance intended to boost investment in the UK economy, was announced in Jeremy Hunt's Spring Budget. However, the election campaigns have caused any noise around this new investment allowance to disappear.
The government held a consultation on the proposed British ISA between 6 March and 6 June, but the Conservatives did not mention it in their election manifesto. This has led some to wonder whether the British ISA is dead in the water, especially given Labour's comfortable lead in the polls.
The British ISA allows investments in UK stocks, UK equity funds, corporate bonds, and gilts. However, Rachael Griffin points out that the vast majority of savers don't exhaust their existing £20,000 ISA allowance. Tom Selby, director of public policy at AJ Bell, suggests that the British ISA might encourage investors to concentrate their portfolio in UK assets, rather than diversifying more broadly.
Selby also states that the British ISA, with its holes resembling a piece of Swiss cheese, would have been ineffective in achieving its aim of boosting UK capital markets. He proposes increasing the overall ISA allowance to £25,000 as a solution for ISA simplification.
Labour's stance on the British ISA remains unclear, with the party silent on the topic in its manifesto document. A party spokesperson previously told City A.M. that Labour has "no plans to drop the British ISA". However, the lack of mention in the manifesto and Labour's commitment to ISA simplification have led some to speculate that the British ISA might not survive a Labour government.
The UK has a cash savings problem, with too much money sitting in low-yielding cash ISAs. Finding ways to get that money invested for the long term would be far more beneficial, according to Griffin. Despite a decent year for the FTSE 100, UK investors pulled £1.3 billion from UK equity funds in the month of April alone.
In an optimistic scenario, the British ISA could deliver around £4 billion of inflows into UK equities. However, Griffin suggests that an additional £5,000 for UK investments is unlikely to alleviate the problems the London stock market is facing.
As the election approaches, the fate of the British ISA remains uncertain. Whether it will be a tool to boost UK investment or another addition to the list of unused government initiatives, only time will tell.
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