City minister takes aim at cash ISAs in call to back the stock market
The City minister lamented the hundreds of billions of pounds stashed away in cash ISAs today as she called for Brits to invest more money in London’s ailing stock market.
Speaking to the Lord financial regulation committee, Emma Reynolds, who took over the role of City minister last month, said the UK had “failed to drive an investment culture” like competitor nations and Brits’ savings were being eroded by inflation as a result.
“Why have we got hundreds of billions of pounds in cash ISAS?,” Reynolds said. “We have failed to drive an investment culture that we see in other places that allows people to invest their money.
“We’ve regulated so much that we’re not protecting consumers against inflation.”
The comments come amid mounting pressure on the government to scrap the cash ISA system, which allows savers to earn tax free interest on up to £20,000 a year. Some £300bn is currently held by Brits in the accounts.
The Chancellor Rachel Reeves was reportedly open to the idea of ditching the tax fee wrapper on cash in order to divert more money towards stocks and shares.
Speaking at the committee today, Reynolds added that it was now on parliament and regulators to create a culture where the general public realises that “cash is not a good investment”.
I feel like we’ve regulated ourselves into zero risk, and actually, that’s bad for consumers as well as bad for firms
Ditching the product has been a popular call from top City fund managers, who argue that the money could earn more for savers in the stock market while also boosting London-listed companies.
Speaking at the Morning Wire summit last year, Peter Harrison, then chief executive of FTSE 100 funds group Schroders, said products like a child’s cash ISA were “almost criminal” due to fact the savings would be eroded by inflation.
The British public has among the lowest levels of equity ownership of Western economies despite efforts to revitalise a culture of investment in recent years.
Over the past two decades, the number of UK households that directly own stocks and shares has more than halved from 23 per cent in 2003 to 11 per cent in 2022. Meanwhile, 39 per cent of American households’ assets are invested in the stock market.
The previous government aimed to coax more money into the stock market with the introduction of a Great British ISA. However, the plans were criticised by top savings firms as a “gimmick” and later shelved under Labour.
The prize of shifting British investment culture is a potentially lucrative one for the London Stock Exchange, which has faced heavy outflows and souring investor sentiment in recent years.
Some £740bn could be unlocked if Brits were to invest around 15 per cent of their household assets in the market, according to think tank New Financial.