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Farewell to the British ISA, but what next for UK investors?

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In what is being described by one stock broker as “another shot in the foot for the UK stock market,” the new Labour government has abandoned the proposal for a British Stocks & Shares ISA (BRISA), which was previously touted under the Conservative government earlier this year.

The Tory government had proposed to extend the current ISA allowance of £20,000 a year to £25,000.  The extra £5,000 allowance was for UK-listed equities only. But with the British ISA now seemingly destined for the scrapheap, what will the new government do to improve the fortunes of the ailing British stock market?

“Effectiveness of BRISA was always in question”

Once a bustling hub of activity, the LSE now stands as a shadow of its former self.  A ghost town where investors once thrived, but now tread cautiously. Yet Labour’s decision to abandon the British ISA is leaving the UK market to haemorrhage further.  This may cause even the most hopeful investors to lose faith in its recovery.

The BRISA was designed as a lifeline for the market.  The exchange is struggling with persistent outflows from equity funds, delistings, and acquisitions by private equity firms.

“Of course, the effectiveness of the BRISA was always in question, and given the current financial climate, this decision might be seen as pragmatic,” observed Gabriel McKeown, Head of Macroeconomics at Sad Rabbit Investments. “However, for many, the BRISA was designed to act as a catalyst, encouraging investors to reallocate their capital towards the UK. However, with the policy abandoned, the UK is left like a lighthouse without its light, struggling to attract investors amidst the fog of global competition.”

Questions had been raised about the BRISA’s effectiveness.  It would really only have been of most use to investors who had already maxed out their £20,000 annual ISA allowance. An estimated 800,000 people in the UK are currently in a position to do this. An estimated £4bn extra would have been channelled into UK stocks as a result, potentially less.

“The BRISA may have split opinion, but I think there is unanimous consensus that more needs to be done to stimulate investment in the UK, reinvigorate our capital markets and get more people investing as well as just saving,” said Dan Moczulski, UK Managing director of CFD broker eToro. “The UK is a leader in financial services, yet when it comes to the number of households invested in capital markets, we are miles behind the US.”

Alternative BRISAs

Some fairly radical solutions are already being bandied around. For example thinktank New Financial proposes to raise the ISA limit to £25,000 but make the minimum UK allowance 50%. Some commentators are concerned that instead investors will be facing further tax hikes from Labour in the autumn budget.

“We need to find ways to get people investing and part of this is about creating a stable and appealing investing environment, with the right incentives,” said Moczulski. “Yet in the last two years, we’ve seen the capital gains allowance cut twice and we’re now facing the prospect of a capital gains tax raid in the upcoming Budget. I would like to see the new government begin to show their cards on this issue and give us a roadmap for how they will support retail investing in the UK.”


British ISA “an unworkable and silly idea”

Not everyone was in agreement with the proposed British ISA however. Among its critics is Philip Dragoumis, Director and Owner at Thera Wealth Management. “This is great news,” he said. “The British ISA was an unworkable and silly idea which would have just created headaches from everybody and would have attracted no extra investment. The government should try and help create an economy and an environment that is stable, business and investment friendly and then the investment will flow.”

Many investors remain braced for the upcoming autumn budget at the end of October. This is regarded as being a real test of Labour’s commitment to the stockmarket, the City of London and to the wider UK investor community.

Riz Malik, Independent Financial Adviser at R3 Wealth. said: “With Halloween on the 31st, it seems the real scare might come a day early this year. The Chancellor appears to have dismissed the idea of an additional tax-free allowance for British ISAs, especially with the looming budget warnings of financial strain. The question now is whether there will be any other support for UK stocks, which have been trailing behind their international peers over the past few years.”

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