Spring Budget 2024: British ISA unveiled to push UK retail investment
A ‘British ISA’ has been unveiled in today’s Spring Budget by Chancellor Jeremy Hunt, pushing investment into UK equities.
ISAs, or Individual Savings Accounts, enable savers to invest £20,000 a year without paying tax on interest or returns.
The new British ISA, which will be introduced after a consultation into the implementation, will allow investors to put an extra £5,000 into UK equities tax-free.
During his Spring statement in Westminster, Hunt said: “Following calls from over 200 representatives of the city and our high growth sectors, I will reform the ISA system to encourage more people to invest in UK assets.”
This will be done to “ensure that British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand,” Hunt said.
The consultation will launch today and will run until 6 June. With the specifics of the ISA proposal vague, commentators emphasised the importance of focusing on the consultation’s outcome.
The idea was pushed by the industry ahead of last year’s Autumn Statement, but the Chancellor instead chose to opt for a simplification of the rules around opening multiple ISAs in a single tax year.
British investors have been slowly moving away from investing their money at home, largely due to pension funds scaling back their overweight in the UK market, mainly in favour of bonds.
In addition, the poor performance of the UK market compared to other countries, such as the US, have left investors turning their noses up at their home market. This has meant that over £40bn has been withdrawn from UK-focused funds in recent years.
Fraser Mackersie, fund manager at Unicorn Asset Management, said: “Keeping capital in the UK and directing UK tax breaks to support UK businesses, the likes of which we own heavily in our portfolios, rather than the economic benefit going overseas is positive.”
“We think there is further to go, but a British ISA is a possible step towards addressing that,” he said, acknowledging the cross-party recognition of the problem that the UK isn’t doing enough to encourage investors to support British business.
Nick Vaill, senior investment director at Investec Wealth & Investment UK, agreed, stating that the move was a “helpful change in narrative”.
“Whilst we wish to invest with a global lens for our clients, as the UK equity market accounts for less than 4% of the global equity market, the British ISA is a welcome addition to the ISA allowance that has not been increased since 2017,” he added.
However, there have been fears that a British ISA would cause investors to lose out from stronger returns abroad.
Analysis from AJ Bell revealed that if an investor had put their tax-free allowance into a tracker following the FTSE All Share over the past 10 years, they would have made £67,658, compared to a return of £97,488 in the Fidelity Index World.
Laith Khalaf, head of investment analysis at AJ Bell, said: “The UK stock market has fallen way behind the global stock market in the last ten years and so a Great British ISA would not have produced happy investors over this period.”
“The performance of the next 10 years may not look like the last, but given that technological growth and investment indexing show no signs of abating, it wouldn’t be a total surprise to find investors continuing to find better returns across the pond.”