Investment platform AJ Bell’s chief executive Michael Summersgill has warned the government that its reforms to the cash ISA are ‘doomed to fail’ and will not encourage more British people to invest.
The cash ISA allowance in the UK will be reduced to £12,000 per year for people under 65 from April 2027 as part of a push from the UK government to get more people investing in the stock market.
However, experts have expressed scepticism at the idea, confirmed at the Autumn Budget last year, and say there is little evidence to suggest this will drive more people to invest instead.
In an explosive letter sent to the UK’s chancellor Rachel Reeves last week, Summersgill (pictured) said: “It is my strongly-held view these unwieldy proposals are doomed to fail in their aim of encouraging more people to invest for the long term and represent a significant backward step for a product whose success has been largely down to its relative simplicity.
“Rushing to implement these changes, which represent a material intervention in the market with wide-ranging consequences, without a proper consultation or any clear evidence they will incentivise long-term investing represents the worst kind of policymaking.”
He added that the proposed cut to the cash ISA allowance has been met with “universal opposition” from the retail investment industry.
“There is no evidence this will materially boost retail investing – indeed, a survey conducted by AJ Bell found the vast majority would simply opt for cash alternatives, such as NS&I bonds, or save in a taxable cash account,” he said.
“As we warned Treasury officials on multiple occasions ahead of the Budget, this will harden the border between Cash ISAs and Stocks and Shares ISAs, making it less likely existing excess funds held in Cash ISAs will shift to long-term investing through Stocks and Shares ISAs.
“Given there are three million people with at least £20,000 invested in Cash ISAs and nothing invested in Stocks and Shares ISAs, this represents a missed opportunity worth at least £60 billion. In the short term, people will rationally flock to Cash ISAs – the opposite of the policy intent – ahead of the allowance reduction in April 2027.”
Sumersgill added that a government proposal to tax uninvested cash held in Stocks and Shares ISAs is “worrying” as it “punishes retail investors for using the Stocks and Shares ISA the way it was designed to be used”.
“The simple fact is that cash passes through Stocks and Shares ISAs all the time. Contributions are made in cash, dividends are received in cash, fees are paid in cash, and risk-based assets have to be sold to create the cash for withdrawals.
“In other words, the government intends to punish retail investors for using the Stocks and Shares ISA the way it was designed to be used by levying tax. It could potentially mean Stocks and Shares ISAs which allow people to hold cash can no longer be marketed as ‘tax-free’, weakening the appeal of the most popular investment account in the UK market.”
Last week, economic secretary to the Treasury, Lucy Rigby, doubled down on its decision to cut the cash ISA allowance for under-65s and called it part of a wider desire to “see more people benefit from the higher returns” that investing can bring.
