Investment experts have welcomed reports that the Labour government is set to scrap plans to introduce a ‘British ISA’ amid concerns that the new product would add to complexity in the ISA market.
According to a report in the Financial Times, Labour has abandoned plans to push ahead with the product drawn up by the previous Conservative government, which would have provided investors with an extra £5,000 for UK-listed equities only.
James Carter, head of platform product policy at Fidelity International, said a British ISA would have “proliferated the complexity” of the ISA sector.
Carter said: “We know that many people find it difficult to identify which products best suit their saving or investment needs and struggle to manage their savings across different ISA types. New financial products must be developed with consumers’ needs at their core.
“Complexity destroys confidence, leaving many individuals missing out on vital opportunities to strengthen both their short and long-term financial position. The ISA product set, with multiple ISA types and complex rules for transfers between them creates confusion for investors. It also limits the economies of scale that providers can offer.”
Carter said confusion can stifle innovation and raise costs for consumers.
“Simplification and certainty of tax treatment can allow both savers and companies to better plan and manage the products,” he added.
Shaun Moore, tax and financial planning expert at Quilter, said: “ 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. If the British ISA did see the light of day, it would have further muddied the water.
“The British ISA was rife with issues and the proposals ran the risk of consumer confusion or poor outcomes. Furthermore, the investment universe of a British ISA would be naturally limited. The reality is, the UK has a cash savings problem and too much money is sat in low yielding cash ISAs, doing very little to help them or the economy.”
Experts said the new government should focus its efforts on simplifying the ISA regime to benefit consumers.
According to Michael Summersgill, CEO of AJ Bell, merging cash and stocks and shares ISAs would make life easier for investors and would-be investors and could provide a significant boost to UK capital markets.
“Over the longer-term, the government should consider whether the best features of the current ISA regime can be combined into a single ISA product. The benefits of simplification for consumers and the UK economy could be substantial. In particular, merging Cash ISAs and Stocks and Shares ISAs would make it easier for those holding money in cash ISAs to transition towards long-term investing.”
Data from HM Revenue & Customs suggests there are around 3 million people in the UK with £20,000 or more invested in Cash ISAs and no money invested in Stocks and Shares ISAs. Summersgill said if just half of that money was invested for the long term, an additional £30 billion of investment would be unlocked.
“Given around half of ISA assets on AJ Bell’s platform are invested in UK companies or UK-focused funds, UK-based firms should disproportionately benefit as a result. From this basis, further reforms aimed at encouraging money to flow to UK business can be considered when economic circumstances allow.
“Increasing the overall ISA allowance from £20,000 to £25,000 should naturally drive more money towards UK plc, while creating a genuine incentive to invest in UK assets, such as by scrapping stamp duty on UK investments, would also help achieve this aim,” he added.
Carter echoed the sentiment: “Fidelity continues to believe that simplification is needed and that there is an opportunity to support consumers to transition from a cash savings culture into longer-term investing. This could be achieved by combining stocks and shares and cash ISA products as well as improving the ease of transfers. Short term needs are well served, but it leads to consumers holding large cash balances for too long, missing out on higher investment returns.”