Rachel Reeves, Britain’s new Chancellor, faces a familiar dilemma: how to revive the country’s appetite for investment without emptying the Treasury’s pockets.
The Association of Investment Companies (AIC), which represents more than 350 listed funds, believes it has the answer, or at least a shopping list. Ahead of November’s Budget, the group has urged the government to “foster an investment culture” through a series of modest but symbolic reforms.
“Creating an investment culture won’t happen overnight,” says Richard Stone, the AIC’s chief executive. “It needs to be built on understanding and trust, with a real push to improve financial literacy.” For too long, he argues, financial education has languished between government departments, the bureaucratic equivalent of a lost parcel.
The AIC’s prescription involves three measures: simplifying individual savings accounts (ISAs), phasing out stamp duty on share purchases, and giving venture capital trusts (VCTs) more room to invest. None, it insists, would cost the Treasury much.
Simplify the ISA alphabet soup
First, ISAs. Britain’s savings regime, Stone argues, has become needlessly baroque: a “pick ’n’ mix” of cash ISAs, stocks and shares ISAs, and other subtypes that baffle savers and deter investment. The AIC proposes replacing them with a single investment ISA, blending cash and equities under one roof.
The idea is to make it easier for savers to shift from cash — still the default home for most ISA money — into productive assets. “Cash is essential for resilience,” Stone concedes, “but it’s not risk-free. Inflation quietly eats away at its value.”
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Under the AIC’s plan, ISA providers offering only cash would be capped at £10,000 in annual contributions per customer. Most savers — two-thirds of cash ISA holders contribute less than that — would be unaffected. But wealthier depositors would have a gentle nudge towards investing rather than hoarding.
A slow death for stamp duty
The second proposal targets stamp duty on share purchases, a relic of the City’s pre-digital age that still skims 0.5% off each trade in UK-listed shares. Stone argues the tax discourages investment in domestic firms and favours foreign markets, where no such levy exists. The AIC wants a phased abolition, starting with investment company shares — still taxed even though open-ended funds are not — and continuing with shares bought inside ISAs and pensions.
This would not only end an odd form of double taxation (since investment companies pay stamp duty again when they buy UK shares), but also remove what Stone calls a “self-defeating bias” against British equities.
Boosting Britain’s venture capital scene
Finally, the AIC wants to loosen the rules on VCTs, a rare example of a policy that has worked. These tax-advantaged funds channel money into small, fast-growing British businesses. The government extended the scheme to 2035 earlier this year, but its investment limits have not been updated in over a decade.
The AIC proposes doubling the annual cap on investment from £5m to £10m for standard companies, and from £10m to £20m for “knowledge-intensive” firms in innovative sectors. Lifetime caps would also rise, and the rule barring investments in companies more than seven years old would be scrapped.
Such reforms, the AIC argues, would cost “not a penny” but would allow VCTs to keep pace with the scale of modern businesses.
Whether the Chancellor listens is another matter. The Treasury has long viewed tax reform for investors as politically delicate — too easy to caricature as a giveaway for the well-off. Yet if Britain is to reverse its chronic underinvestment, as both Labour and business groups agree it must, nurturing an investment culture may be less a luxury than a necessity.
