Chancellor Jeremy Hunt’s introduction of the ‘Great British ISA’ in today’s Spring Budget garnered a decidedly mixed reaction.
The Chancellor announced a £5,000 increase in ISA allowances restricted to UK-listed stocks only, bringing the yearly tax-free allowance for the ISA tax wrapper up to £25,000 per year.
Hunt positioned this increased ISA allowance as a way of bolstering investment in UK companies, but what do market participants think?
The good
Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “We welcome the introduction of a UK ISA to encourage investment in the UK stock market.
“We’ve been calling for this as part of a broader initiative to reinvigorate the UK’s capital markets as well as promoting wider share ownership.”
Indriatti van Hien, deputy fund manager of The Henderson Smaller Companies Investment Trust commented: “Two announcements from today’s Budget which we welcome as positive steps taken to address the UK equity market’s significant valuation discount are: the introduction of a British ISA, and new requirements to be placed on pension funds to disclose the proportion of assets invested in the UK.
“Enhancing UK investment incentives in such a way is a virtuous circle - it helps to position the UK stock market as more attractive to innovative, growth-focused companies which in turn affords UK pension funds the opportunity to share in the success of those companies."
The bad
Michael Summersgill, chief executive at AJ Bell, was less than impressed.
The British ISA is “doomed to fail in its objective of boosting UK plc”, wrote Summersgill
“Increasing investment into UK companies is a laudable aim, but this ill-conceived, politically motivated decision will simply not achieve that objective.
“50% of the money our customers currently invest through their stocks and shares ISAs is invested into UK assets, so this new allowance will have no impact whatsoever on their investment behaviour.
“A tiny minority of people max out their £20,000 ISA allowance each year, but these are the only ones that will see any benefit from the additional British ISA allowance. In the context of the £2tn+ UK stock market, any additional investment generated by these investors through the British ISA will be a rounding error.”
Summersgill said the plans would add an “unwelcome complexity” to ISAs.
“Rather than complicating ISAs, the Government should be making it easier for people to invest by simplifying the ISA landscape,” he said.
Barry Norris, manager of the VT Argonaut Absolute Return Fund, said the “British ISA won’t stem the failing FTSE”.
He continued: The liberalisation of capital markets has allowed UK investors to sell domestic shares to foreigners and so far, get the better of that bargain.
“If UK investors are forced to invest domestically it would be a market distortion that allows foreign capital to exit at falsely higher prices.”