The Chancellor has launched a new British ISA and British Savings Bond to boost investment into the UK equity market.
In his Spring Budget statement, the Chancellor said the government wanted to make it easier for people to save for the long term with a new British Savings Bond, delivered through National Savings and Investments, offering savers a guaranteed rate fixed for three years. Further details on this will be announced in due course.
The Chancellor also unveiled he will be consulting on a new British ISA, which will allow investors to invest an extra £5,000 tax-free into UK equities on top of the current £20,000 annual allowance.
However, the announcements were met with mixed reactions.
Mark Hicks, head of active savings at Hargreaves Lansdown, said all eyes will be on the rate offered by NS&I for the new bond.
He said: “Even savers who want to buy British with their cash will not want to accept a disappointing rate in return. With the Bank of England set to cut rates in the coming months, savers will need to think carefully whether they want to wait for this bond – with no certainty about the return on offer, or fix now, while they can still secure a great rate.
“It’s also worth noting that most savers are currently choosing easy access and shorter-term fixed rates. Given this is a three-year bond, it will need to be a very attractive rate to inspire much interest from savers.”
The decision to introduce a British ISA also raised question marks. Critics warned that it could raise “significant implementation challenges” and risks further complicating an already-complex ISA regime.
Simon Harrington, head of public affairs at PIMFA, said: “We see very little appetite to offer such a wrapper while the operational burden, which this would place on firms suggests that even if appetite were there it seems unlikely that firms would want to offer it.
“If the Government is really committed to reviving retail investment in UK PLC we would suggest simpler measures like a reduction or abolition of Stamp Duty on share purchases rather than the introduction of yet another ISA into the market.”
AJ Bell also raised concerns about the announcement, suggesting that the “politically motivated decision” is unlikely to achieve its objective of increasing investment into UK companies.
AJ Bell’s own data shows 50% of the money its customers currently invest through their stocks and shares ISA is invested into UK assets. In addition, only a “tiny minority” of people max out their £20,000 ISA allowance each year.
Michael Summersgill, chief executive of AJ Bell, said: “For most people, the British ISA only adds an unwelcome complexity. People will now have another option to evaluate when deciding which ISA type is right for them. Rather than complicating ISAs, the Government should be making it easier for people to invest by simplifying the ISA landscape.”
The investment platform has been staunchly calling upon the government to strip back complexity within ISAs and instead combine the best features of ISAs with a single ‘One ISA’ product, which it said would help create a culture of long-term saving and investing.
Summersgill added: “Our research shows that complexity puts people off saving and investing for the long-term, so throwing another ISA in the mix, alongside the six others that already exist, will inevitably add to this problem.
“The aim is laudable, but the British ISA is simply the wrong way to achieve it. 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.”
Rachael Griffin, tax and financial planning expert at Quilter, was similarly critical in her approach to the new ISA, calling the announcement a “motivated stunt” ahead of upcoming elections.
“So few people use their total ISA allowance in a given tax year too, so 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.
“Moreover, the effectiveness of this initiative is contingent upon its uptake by the public and the response from UK companies. 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.”
Critics also raised concerns that encouraging investment into UK shares only could undermine the importance of diversification across different asset types and geographical locations as a way of managing investment risk.
Meanwhile, retirement specialist Aegon said it was disappointing that the Chancellor did not take the opportunity to modernise Lifetime ISAs. Under current rules, a LISA cannot be opened past the age of 40 and an investor can only contribute a maximum of £4,000 per year, with contributions capped at age 50.
Kate Smith, head of pensions at Aegon, said: “Raising the maximum age for taking out a LISA to 50 would have made them available to a wider audience, while allowing contributions to continue, possibly to 55, could have enabled LISA savers to build up larger sums, particularly if using the product as a retirement savings vehicle. The annual contribution limit is also restrictive and has not been increased since introduced back in 2017.
“Omitting a modernisation agenda for LISAs from the Budget is a missed opportunity particularly for those aspiring to be first time buyers.”
However, others were more supportive of the Chancellor’s new initiative, believing it will help boost the UK equity market.
Natalie Bell, fund manager at the Liontrust Economic Advantage Team, said: “We believe the British ISA will be an important catalyst to help reverse the trend of persistent outflows experienced by UK equity markets for a number of years. 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.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “We welcome the launch of the consultation which considers how to revitalise UK listings with a British ISA. We have heard the calls around improving liquidity in London markets, especially at the small and mid-cap end. Here retail investors have an important role to play.”
