Responding to the Treasury’s consultation on the creation of a UK ISA as announced by the Chancellor of the Exchequer in the March Budget, PIMFA is calling on the next Government to focus on removing barriers to investment rather than creating new products.
PIMFA strongly supports any reform which encourages growth and prosperity in the markets its members operate in. In partnership with a new government, we hope to see a growing culture of saving and investing in the UK, that provides people with the opportunity and confidence to invest and benefit from the UK’s vibrant capital markets.
However, we believe attempts by the Government to engineer this through product design is the wrong way to achieve this aim.
PIMFA does not consider that historic underinvestment in the UK represents a market failure which can be addressed through the creation of yet another ISA wrapper. In its response it suggests the next Government could stimulate UK investment further by abolishing Stamp Duty of UK share purchases or reversing the gradual erosion of investment allowances such as the Capital Gains Tax and Dividend Thresholds.
We do not believe the UK ISA represents a compelling market opportunity for firms. Feedback from our members suggests only marginal value can be found as an additional £5,000 annual top up if it correspondents with the client’s risk appetite. This would benefit a maximum of 7% of ISA savers that reached their maximum ISA allowance in 2023/24.
Firms may also face regulatory risks when distributing the UK ISA. It is unlikely that recommending a transfer from a unrestricted Stocks and Shares ISA to a restricted UK ISA will represent a good outcome for the client and we would expect the Financial Conduct Authority (FCA) would likely take the same view in its enforcement of the Consumer Duty. Meanwhile, the desire to exclude ‘cash-like’ investments and, specifically cash itself, would make it difficult for firms both offering the UK ISAs and advisers constructing portfolios around it. Excluding all cash-like investments would again have regulatory implications for advisers who would consider that moving investments into cash would be in the client’s best interests – particularly in periods of acute market volatility.
Simon Harrington, Head of Public Affairs at PIMFA, commented: “PIMFA is very supportive of reforms that aim to encourage greater saving and investing in the UK. We’re just not convinced that a UK ISA is the best way to achieve this.
“However, we see very little appetite for this product among firms who would actually have responsibility for distributing it – it is operationally onerous, the market is small and it is not immediately clear to us that it represents a statistically significant inflow of new money into the UK economy. We think this is a poorly targeted response to a much wider public policy issue.
"While not an end in itself we consider that the simplest way to encourage long-term savings and investment in the UK is through the creation of a simple and stable tax environment. In the first instance we would recommend considering cutting or abolishing stamp duty altogether whilst also ending the continual tinkering of allowances to make marginal gains to the Exchequer.
"Savers and investors need certainty from government, not product innovation. We would encourage the next Government to think deeply about the systemic issues that prevent UK savers and investors backing UK capital markets rather than papering over the cracks by designing products to force investor behaviour that we believe will ultimately come to nothing.”
|
