The Financial Times has reported that Chancellor Rachel Reeves will scrap the previous government’s proposal for a new UK Individual Savings Account (ISA).
The UK ISA, originally put forward by former chancellor Jeremy Hunt, would have offered savers an additional £5,000 of tax-free investment allowance on top of the existing £20,000 annual allowance.
However, the proposal faced significant opposition, including from firms like AJ Bell, which argued that it would complicate an already complex savings landscape.
AJ Bell CEO Michael Summersgill commented: “The UK ISA was a political gimmick that was doomed to fail in its objective of boosting investment in UK Plc.
“The new government deserves huge credit for consigning this ill-conceived idea to the policy dustbin and will hopefully now take a more sensible, long-term approach to ISA reform than their predecessors, focused on simplification for the benefit of consumers.
“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.”
Summersgill proposed merging the two most popular Isa products—Cash ISAs and Stocks and Shares ISAs—to make long-term investing more accessible for Cash ISA holders.
According to HMRC data, around three million people in the UK have over £20,000 in Cash ISAs but no investments in Stocks and Shares ISAs. AJ Bell estimates that if even half of these funds were invested, it could unlock an additional £30bn for long-term investments, benefiting UK companies and funds.
Summersgill also suggested that further reforms, such as increasing the Isa allowance to £25,000 and eliminating stamp duty on UK investments, could encourage more investment in UK businesses.
Shaun Moore, a tax and financial planning expert at Quilter, also supported the scrapping of the UK ISA, calling it a “sensible move.” He noted that the various additions to the ISA system over the years have made it overly complex, and the introduction of a UK ISA would only add to this confusion, potentially leading to poor consumer outcomes.
James Carter of Fidelity International echoed these concerns, stating that while the UK ISA would have increased the overall investment allowance, it would have added unnecessary complexity, undermining consumer confidence and making it harder for individuals to manage their savings effectively.
Source: Cooper, Dan. Money Marketing. FT Adviser. September 2024. https://www.moneymarketing.co.uk/news/chancellor-scraps-plans-for-uk-isa/.