The Chancellor’s overhaul of ISAs is ‘doomed to fail’ in its goal of boosting retail investing in the UK, warns AJ Bell chief executive Michael Summersgill.
In a letter sent to Rachel Reeves, Summersgill said cutting the cash ISA allowance from £20,000 to £12,000 for under 65s from April 2027 was a “significant backward step” for a product whose success has stemmed largely from its simplicity.
Summersgill said: “Rushing to implement these changes, which represent a material intervention in the market with wide-ranging consequences, without a proper consultation or any clear evidence they will incentivise long-term investing, represents the worst kind of policymaking.”
Summersgill said the proposed cut to the allowance has been met with “universal opposition” from the retail investment industry.
He continued: “There is no evidence this will materially boost retail investing. As we warned Treasury officials on multiple occasions ahead of the Budget, this will harden the border between cash ISAs and stocks and shares ISAs, making it less likely existing excess funds held in cash ISAs will shift to long-term investing through stocks and shares ISAs.
“Given there are three million people with at least £20,000 invested in cash ISAs and nothing invested in stocks and shares ISAs, this represents a missed opportunity worth at least £60 billion. In the short term, people will rationally flock to cash ISAs, the opposite of the policy intent, ahead of the allowance reduction in April 2027.”
Summersgill also blasted plans to impose a 22% tax on interest earned from uninvested cash in stocks and shares ISAs, warning that it punishes retail investors for using stocks and shares ISAs the way they were designed to be used. He urged the Government to avoid adding “horrendous complexity” to ISAs through the measures and to steer clear of any restrictions on cash-like investments.
“The simple fact is that cash passes through stocks and shares ISAs all the time. Contributions are made in cash, dividends are received in cash, fees are paid in cash, and risk-based assets have to be sold to create the cash for withdrawals.
“In other words, the Government intends to punish retail investors for using the stocks and shares ISA the way it was designed to be used by levying tax. It could potentially mean stocks and shares ISAs which allow people to hold cash can no longer be marketed as ‘tax-free’, weakening the appeal of the most popular investment account in the UK market,” he added.
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