Labour ‘scraps plan’ for Isa to lure funds into British stocks

The government is set to abandon plans drawn up by the Conservative administration for a “British Isa” designed to encourage investment in UK stocks.

The Labour Party is reported to have scrapped the scheme because of concerns that it would complicate the market for individual savings accounts instead of supporting UK equities.

Jeremy Hunt, who was then the chancellor, announced the British Isa in his budget in March to encourage investment in domestic stocks and offer a tax break for participating investors. Hunt’s announcement came amid rising concern about the valuation gap between UK and US-listed companies and a relatively low level of retail investment in equities listed on the London Stock Exchange.

The scheme provided a tax-free allowance for investment in UK shares of up to £5,000, which would be available in addition to the Isa allowance of £20,000.

However, the policy was criticised for complicating the investment market, and DIY investment platforms such as AJ Bell and Hargreaves Lansdown raised concerns that it could deter people from using Isas. The Financial Times first reported news of the government’s decision to axe the policy.

Michael Summersgill, chief executive of AJ Bell, said: “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.”

Summersgill said data from HM Revenue & Customs showed that there were three million people with £20,000 or more invested in cash Isas and none in stock and shares Isas. He said diverting half that funding into shares would provide companies with investment of more than £30 billion.

AJ Bell is in favour of removing the distinction between cash and equity Isas to create a simpler scheme, and encouraging the millions of people with cash savings sitting in Isas to divert the funding to shares.

Dan Olley, chief executive of Hargreaves Lansdown, said: “We’re pleased that the government will not be pursuing this because simplicity is key when it comes to getting people to start investing. The UK Isa would have added complexity with little real benefit for many.”

Olley added: “The key to investing is to start early to benefit from the power of compounding over time, but many people lack confidence or time to do so. This is a challenge to be addressed.”

A Treasury spokesman said: “No decisions have been made. The government will provide further information on its plans for the British Isa in due course.”