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Chancellor Jeremy Hunt is facing opposition to his plans to shake up individual savings accounts amid growing skepticism over the government’s efforts to funnel money into London-listed companies.
Treasury officials, in meetings with capital market providers and investment platforms, continued to raise the idea this month of a so-called UK Isa, according to two people briefed on the discussions.
The talks began as the Government prepared for a pre-election budget early next month with reforms to the tax-free savings scheme launched alongside a wider attempt to rejuvenate retail investment, including the sale of NatWest shares already ‘summer.
The proposals include an additional £5,000 tax relief for UK-listed shares only, on top of the current £20,000, to encourage more people to invest in British companies.
Officials also proposed limiting a portion of the current tax break exclusively for the same purpose.
Last week Hunt told finance executives he was “very attracted” to the idea of introducing an incentive for investors to use their ISAs to invest in UK shares.
“Do I want to do things that mean more British capital is invested in our most promising companies? Absolutely. I think something like a British Isa could be very good at that,” she said.
However, some political advisers expressed serious doubts during the meetings. They argue that the proposals risk narrowing choice and adding complexity to the Isa savings scheme. Industry data also underlined the government’s failure to follow through on previously announced plans.
A possible UK Isa was mooted before last year’s autumn statement, but was abandoned when the chancellor decided to use all the tax muscle he had to cut £20 billion in personal and business taxation.
Hunt instead announced that savers will be allowed to open multiple Isa accounts in a single year and that the Government will consult on allowing investments in fractional shares – portions of a single share – following complaints from several smaller platforms.
“We don’t even have a bill in place to implement these changes – and they are considering another change in place. There is no idea of a long-term strategy,” said one supplier, who warned that the proposals would not be delivered in time for the election.
Hunt’s allies have confirmed that with limited “fiscal space” available in his March 6 Budget, the Chancellor and Prime Minister Rishi Sunak may decide to allocate money to “bigger priorities”, particularly pre-election tax cuts.
“The problem we have identified is getting more liquidity into UK stocks and one of the options is a UK Isa,” a Hunt ally said, confirming discussions were ongoing. Whitehall insiders say Sunak is interested in the idea.
Some City firms have backed proposals, including in an open letter to the Times, arguing that a UK Isa would help combat capital flight from London’s stock market.
Isa savers are exempt from paying tax on savings interest, dividends or capital gains on funds held in their Isa accounts. Withdrawals are also not subject to income tax.
A group of consultants at 10 Downing Street also have doubts about the introduction of an ISA in the UK, according to three executives who were invited to comment on the proposals. Some were “purely free-market economists who don’t like this kind of thing,” one executive said.
However, the person warned: “If there is no market, there is no point in having a free market.”
Sources within the government admit that the issue is fiercely contested by officials, but deny that a rift has opened on ideological grounds. “The idea is to incentivize investment,” said one. “It’s still a choice for people.”