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Chancellor Jeremy Hunt is facing opposition to his plans to shake up individual savings accounts amid growing scepticism over the government’s efforts to funnel cash into London-listed companies.
Treasury officials, in meetings with capital market providers and investment platforms, continued to raise the idea this month of a so-called UK Isa, according to two people briefed on discussions.
Talks came as the government geared up for a pre-election Budget early next month with reforms to the tax-free savings regime floated alongside a wider attempt to rejuvenate retail investment, including the sale of NatWest shares as soon as this summer.
Proposals include an additional £5,000 tax-free allowance for UK-listed equities only, on top of the current £20,000, to encourage more people to invest in British companies.
Officials have also floated restricting a portion of the current tax-free allowance solely for the same purpose.
Hunt told finance executives last week he was “very attracted” by the idea of introducing an incentive for investors to use their Isas to invest in UK equities.
“Do I want to do things that mean that more UK capital is invested in our most promising companies? Absolutely. I think that something like a British Isa could be very good at that,” he said.
However, some political advisers have expressed serious misgivings in meetings. They argue that the proposals risked narrowing choice and adding complexity to the Isa savings regime. Industry figures also pointed to the government’s failure to deliver on previously announced plans.
A possible UK Isa was raised before last year’s Autumn statement, but dropped when the chancellor decided to use whatever fiscal firepower he had for £20bn in cuts to business and personal taxation.
Hunt instead announced that savers would be permitted to open multiple Isa accounts in a single year and that the government would consult on allowing investments in fractional shares — portions of a single share — following complaints from several smaller platforms.
“We don’t even have draft legislation in place to implement these changes — and they’re looking at another change in place. There’s no sense of a long-term strategy,” said one provider, who warned that proposals would not be deliverable in time for an election.
Hunt’s allies confirmed that with limited “fiscal headroom” available in his March 6 Budget, the chancellor and Prime Minister Rishi Sunak might decide to earmark cash for “bigger priorities”, notably pre-election tax cuts.
“The issue we’ve identified is to get more cash into UK equities and one of the options is a British Isa,” said one ally of Hunt, confirming that discussions were live. Sunak is said by Whitehall insiders to be interested in the idea.
Some City firms advocated proposals, including in an open letter to The Times, arguing that a UK Isa would help combat the flight of capital from London’s equity market.
Isa savers are exempt from paying tax on savings interest, dividends or capital gains on funds held in their Isa accounts. Withdrawals are also not subject to income tax.
A group of advisers at 10 Downing Street also have doubts about introducing a UK Isa, according to three executives who have been invited to comment on proposals. Some were “quite pure free-market economists who don’t like this sort of thing”, said one executive.
However, the person cautioned: “If you don’t have any market, there’s no point having a free market.”
Government insiders admit the issue is being fiercely contested by officials, but deny a split has opened up along ideological lines. “The idea is incentivising investment,” said one. “It’s still a choice for people.”
