Long-term asset funds are set to be included in stocks and shares ISAs next year, as part of the Government’s drive to encourage more people to invest.
Part of a new financial strategy dubbed the Leeds Reforms, announced in the Chancellor’s Mansion House Speech on Tuesday, the move will allow more individuals to invest in assets that will support the UK’s future success such as innovative businesses and infrastructure.
The Chancellor said it was time for the UK to “double down on its global strengths” to make sure it stays ahead.
Currently, the UK has the lowest level of retail investment among G7 countries, meaning savers are missing out and UK businesses are starved of an important source of capital.
However, Reeves said the raft of reforms would “rewire the financial system” to cut red tape, encourage more consumers to invest and make the UK the number one destination for financial services by 2035.
From April 2026, banks will be allowed to send investment opportunities to savers with cash sitting in low interest accounts for the first time. Alongside a review of risk warnings on investment products to make sure they help people to accurately judge risk levels, the Treasury said this will help guide people through the large number of investment products on offer.
In addition, major financial institutions are backing a new advertising campaign that will highlight the opportunities of investing for consumers who are able to do so.
Stocks and shares have performed significantly better than cash savings in recent decades. According to estimates, more than 29 million adults across the UK have cash sitting in a low-interest rate account offering around 1%, while the average return for stocks and shares over the last decade is around 9%.
Under current trends, moving £2,000 from these accounts to stocks and shares could make millions of people over £9,000 better off in 20 years’ time.
Rachel Reeves, chancellor of the Exchequer, said: “We need to double down on our global strengths to put the UK ahead in the global race for financial businesses; creating good skilled jobs in every part of the country and helping savers’ money go further through our Plan for Change.”
Emma Reynolds, economic secretary to the Treasury, commented: “Helping people take advantage of better returns from investing is key to better financial health, giving them a stake in a growing economy and connecting promising businesses with capital.
“These reforms will make the UK the best location for financial services firms and tear down barriers to investment to growing our economy and making families better off.”
The reforms were widely welcomed by the financial industry as a step in the right direction, although there were calls for the Government to be “bolder”.
Richard Stone, chief executive of the Association of Investment Companies, said: “We strongly support the industry-wide campaign to get more people investing. We need a real push to improve financial literacy and promote a better understanding of risk, return and the value of investing for the long term.
“The direction of travel is encouraging, but the Government could be bolder. The ISA regime is badly in need of simplification. We want the Government to create a single investment ISA, merging the stocks and shares ISA and cash ISA. The Government should exempt share purchases within the ISA from stamp duty. This would aid consumer understanding and encourage investment, supporting UK-listed companies and boosting growth.”
Michael Healy, UK managing director of IG, said: “The Government is right to recognise retail investment as a major issue – engagement in investing is shockingly low, and consumers need to be educated, motivated, and incentivised to back the British stock market.
“However, diagnosing the issue does not solve it, and the proposed solutions laid out by the Treasury and FCA are frustratingly unambitious.
“If the Government truly wants to end the culture of fear when it comes to investing, and reward British investors for backing the UK, it must implement changes which actually bolster people’s wallets.”
IG is calling for the scrapping of stamp duty on UK shares and the introduction of income tax relief on UK-listed shares.
“It is this sort of tangible ambitious approach which will actually boost economic growth – at a personal level and a national one – rather than just talking about it,” added Healy.
Tom Selby, director of public policy at AJ Bell, said: “Today’s announcement from the chancellor sends a clear message: we need to get Britain investing.
“ISAs are clearly seen as a crucial route through which to get the public investing for the long term, helping boost their household finances and support capital markets in the process. The devil is in the detail, however, and there still isn’t much of that to get stuck into.”
Selby noted that the ISA landscape has become increasingly complex over time, with multiple different ISAs with their own rules and regulations. He said a starting point on the road toward simplification should involve merging cash and stocks and shares ISAs.
“Evidence shows that our initial financial choices tend to be sticky. People get into the habit of one thing and often ignore the alternatives to their cost. We need to smash the psychological barrier between saving and investing, starting with a crucial symbolic move of bringing cash ISAs and stocks and shares ISAs together into a simple product,” he added.
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