While the British ISA idea was canned last year, the government continues to look at changes to ISAs which could improve returns for savers by channelling investment into productive assets, such as equities, rather than cash. This should be grist to the mill from a UK growth perspective, with faster growth the only solution to what ails us fiscally. Whenever changes or reductions to the cash element of ISAs is touted, it is met with fierce resistance from savers, who see it as frankly unfair. Yet, according to broker Peel Hunt, of the £740bn of total ISA assets, £394bn is parked in “unproductive” cash. The total cost of tax relief from ISAs is a significant £9bn per annum, up from c. £4bn in 2020 when interest rates were, of course, much lower.
Incongruously, there are no stipulations within a stocks and shares ISA to invest a minimum percentage into UK-focused equities. Why should UK taxpayers’ generosity help to reduce the cost of equity for overseas companies? A minimum UK quota shouldn’t even prove that controversial given Personal Equity Plans (the forerunner to the ISA) had a 75% minimum UK requirement.
By capping the cash element too, with suggestions of between £4,000-£5,000, and mandating a minimum UK allocation to investment, the government could very quickly help to channel a significant amount of capital into its domestic market that sorely needs it. With valuations so attractive currently, it could prove a rare win-win for both savers and the economy alike.
