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British savers will be handed an extra tax-free allowance for owning UK equities, part of a package of measures including a public sale of NatWest aimed at boosting investment in London-listed companies.
Chancellor Jeremy Hunt confirmed in his Budget on Wednesday that the government would move forward with proposals for a new “British Isa” that would provide savers with an additional £5,000 tax-free allowance for investment in London-listed companies.
“This will be on top of the existing Isa allowances and ensure that British savers can benefit from the growth of the most promising UK businesses,” Hunt said on Wednesday, adding that more than 200 city and corporate executives had lobbied him for the change.
The existing £20,000 tax-free allowance has been in place since 2017-18. It can be split between cash and other investments. No tax is payable on savings interest, dividends or capital gains, and withdrawals are not subject to income tax.
UK adults subscribed to almost 12mn Isa accounts during 2021 and 2022, but the majority opted for cash Isas rather than investment products.
London’s domestically focused FTSE 250 stood 1 per cent higher after the Budget. Brokers and retail trading platforms AJ Bell and Hargreaves Lansdown gained 2.6 per cent and 2.2 per cent respectively.
However, the wider reception was more muted. Charles Hall, head of research at UK small and mid-cap broker Peel Hunt, said the Isa reforms were “better than nothing and an important start”.
“At the moment, outflows of funds from UK equities are depressing valuations and mean there aren’t available funds for [initial public offerings],” he added. “These new measures are no panacea.”
Neil Birrell, chief investment officer at Premier Miton Investors, said the £5,000 allowance would have to rise “a hell of a lot” more before it made a notable impact on the UK equity market.
Hunt also reiterated an ambition to start the first sale of NatWest shares to the public this summer as part of a drive to create a “new generation of retail investors”. He said the offer would take place “at the earliest opportunity, subject to market conditions and value for money”.
The sale harks back to Margaret Thatcher’s vision of “popular capitalism” in her privatisation campaigns of the 1980s, most famously that of British Gas accompanied by the “Tell Sid” advertising campaign. It is also a political move ahead of a likely general election in the autumn.
NatWest named Paul Thwaite chief executive last month, expediting the timescale in order to have a permanent boss in place before the government starts to sell down its remaining 32 per cent stake in the bank, a legacy of the £45.5bn bailout in 2008.
The Treasury has reduced its stake from a peak of 84 per cent by selling blocks of shares to institutional investors, but the summer plans would be the first time it would offer NatWest stock to individuals, most likely at a discount to its market value.
The government has said it wants to fully exit its holding in either 2025 or 2026. NatWest stock has fallen 13 per cent in the past year.
The chancellor also used his Budget to ramp up pressure on British pension funds not responding to a push to provide greater support for UK businesses.
In a move aimed at stimulating economic growth, Hunt confirmed plans to introduce a new requirement on “defined contribution” and local authority pension funds to disclose their allocations to UK and international equities.
Holdings of UK equities across the pension sector had fallen to about 6 per cent, according to data in Wednesday’s Budget documents.
The government also said it would consider “what further action should be taken” if data from the new disclosure requirement, to come into force in 2027, “does not demonstrate that UK equity allocations were increasing”.
