ISA reforms have been put on the table by the Treasury as part of Chancellor Rachel Reeves’ Spring Statement, in a move welcomed by the City.
Details were conspicuous by their absence though, with the government only committing to ‘look at options.’
Reports have indicated the Treasury wants to encourage people to invest in the UK stockmarket rather than leave all their money in cash ISAs. There was no confirmation of any changes to allowances or incentives at this stage.
Rachael Griffin, tax and financial planning expert at Quilter, said: “It’s encouraging to see the Treasury taking a serious look at ISA reform. ISAs are long overdue some careful thought to ensure they are both simple and produce the right behaviours. There’s a real opportunity here to simplify the system and better align it with Labour’s objectives.
“Making stocks and shares ISAs more attractive than their cash counterpart could help more people grow their wealth over the long term and direct more capital toward productive investment, which is clearly a goal for this government. Many Britons hold excessive cash generating low returns, rather than investing in growth assets that could better secure their financial future and help the UK economy.
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“But any reforms must be handled with care,” Griffin continued. “Cash ISAs remain popular for a reason — they offer security, accessibility and certainty, particularly for older savers or those with shorter-term goals. The key will be finding the right balance and encouraging investment without alienating those who rely on safer options.
Michael Summersgill, chief executive of AJ Bell, added: “Chancellor Rachel Reeves made clear ahead of the Spring Statement that she wanted to bring about a retail investing revolution in the UK.
“Despite holding off on reform today, the government has confirmed change to the status quo is being considered ahead of the Budget later this year, with Labour having already committed to ISA simplification and encouraging greater use of stocks and shares ISAs during the general election campaign.
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“Some have argued that cash ISA allowances should be scaled back to effectively shove people towards investing, and the Spring Statement document says the government is looking at ways to get the ‘balance right between cash and equities’ when it comes to ISAs,” he continued.
“However, research conducted by AJ Bell focused specifically on cash ISA savers suggests this will not be an optimal way to shift consumer behaviour, with only one-in-five saying they would migrate to investing in the UK stockmarket if the cash ISA allowance was reduced or abolished.
Chris Cummings, chief executive of the Investment Association, said: “We welcome today’s commitment from government to boost the culture of retail investment, including looking at options for ISA reforms that will get the balance right between cash and equities to earn better returns for savers.
“Our industry has long called for the government to create a culture of inclusive investment, which will see more people benefit from investing, and we’re pleased that the government has now heeded this call.
“Today’s statement also reiterates the central role of investment in delivering UK growth, in light of the challenging circumstances facing the UK economy and households. Investment managers are already playing an active role to deliver growth by channelling £1.4trn to UK businesses, infrastructure and social projects annually.”
This story originated on our sister title, PA Adviser