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Rachel Reeves is preparing to launch a review of the Isa market within weeks in a push to encourage savers to channel more money from tax-free cash into British stocks, according to people familiar with the plans.
The Treasury will begin a consultation to gain views across the City of London on how to reform the UK’s Isa regime, industry figures said, as the chancellor seeks to bolster what she calls “a culture in the UK of retail investing”.
The move could pave the way for one of the biggest shake-ups of the Isa market since its creation in 1999, following calls from some large City firms to cap the amount that can be held tax-free in cash.
The UK has four main Isa products, including the cash Isa, which is by far the most popular product, housing £300bn of savings at present. Isas allow individuals to save and invest up to £20,000 a year free of income and capital gains tax.
The Treasury paper is expected to be launched within weeks and potentially at Reeves’ Mansion House speech to City executives in July, when the government is aiming to publish its Financial Services Growth and Competitiveness Strategy.
“Mansion House is all about getting more money into the UK,” one of the people familiar with the plans said, adding that any reforms flowing from the consultation could feature in Reeves’ Autumn Budget.
The Treasury said “no decisions have been taken” but that the government was “looking at options for reforms to Isas that get the balance right between cash and equities”.
Reeves said this month that she wanted “to create more of a culture in the UK of retail investing, like what you see in the United States”, in order to help savers achieve better returns and “support the ambition to grow the economy”.
The Financial Times reported in January that City firms were urging Reeves to scale back tax breaks for cash Isas. Savers poured £4.2bn into cash Isas in March, up by almost one-third compared with the previous year, according to investment site Hargreaves Lansdown.
Companies including insurance group Phoenix and the London Stock Exchange Group told the chancellor in January that money in cash Isas could generate better returns for savers if it was invested in stocks and shares, while supporting London’s shrinking equities market.
Fidelity International is among the firms to have called for a single Isa product, within which individuals could move between cash and stocks and shares, and suggested limiting the cash portion to £4,000.
Despite speculation, Reeves did not set out changes in the Spring Statement in March, although the government at the time said it was “looking at options for reforms” to “get the balance right between cash and equities to earn better returns for savers, boost the culture of retail investment, and support the growth mission”.
One industry figure said a consultation should lead to “something more concrete in the Budget” in the Autumn. “We do know the Treasury is keen to listen, so they might find a paper helps to formalise those conversations and lighten the load of meetings they’ve been asked to,” they added.
Tom Selby, director of public policy at investment site AJ Bell, said the government was “absolutely right to be looking at whether the current Isa system does enough to foster a healthy investing culture in the UK”.
But Carol Knight, chief executive of The Investing and Saving Alliance, a not-for-profit organisation, said “cutting the tax benefits of [the] cash Isa will not encourage people to invest more”, and urged ministers to offer better support to Britons on how best to make use of their savings.
