Chancellor ditches UK ISA plans

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.

Merging cash with stocks and shares ISAs is the obvious starting point, a reform that would make life easier for investors and would-be investors and could provide a significant boost to UK capital markets into the bargain. 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 with stocks and shares ISAs – the two most popular ISA products in the UK – would make it easier for those holding money in cash ISAs to transition towards long-term investing.

HMRC data suggests there are around three million people in the UK with £20,000 or more invested in cash ISAs and no money invested in stocks and shares ISAs. If just half of that money was invested for the long term, an additional £30 billion of investment would be unlocked. That is a conservative estimate and the actual figure may be far higher, given that HMRC’s data indicates many of those individuals hold a cash ISA balance far in excess of £20,000.

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.