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ISA Reform: All Bark No Bite

Nicholas Hyett, Investment Manager at Wealth Club said:

“There’s a certain logic to ISA reform. Anyone who hits the maximum £20,000 cash ISA allowance year-after-year should really be thinking about investing some of that in the stock market.

However, the reality is that this policy needn’t affect your savings decisions at all. Money market and other short dated fixed income funds available in a stocks & shares ISA mean investors can effectively hold cash within a stocks & shares wrapper.

On the plus side this means investors really don’t need to worry too much about this ISA reform – though banks may find the fall in cheap deposits more problematic. It’s less good news for the Chancellor though. The reform was designed to encourage investment in UK listed companies, but she may find that she has positioned herself against the UK’s army of committed savers and not achieved much at all.”

Scottish Friendly’s chief executive Stephen McGee says:

“It’s encouraging to see the Chancellor take steps to reduce the annual cash ISA allowance, even if we believe she could have gone further.

“The direction of travel is right, but if the Government really wants to shift behaviour and support long-term wealth creation, the cap ideally needs to be set at around £8,000.

“At that level, households would still be able to build a meaningful emergency fund but would be encouraged to invest anything above that. This is vital, as there is currently around £360 billion sitting in cash ISAs earning interest that often fails to keep pace with inflation.

“To be clear, we welcome this move. But if the Government wants to truly build a US-style investing culture here in the UK, then it needs to go further.”