The Treasury has said it will leave the annual subscription limit for Individual Savings Accounts (Isas) at £20,000.
This is despite its plan to scrap the UK Isa.
In a document published today (30 October), after Rachel Reeves’ first Budget as chancellor, the government said it will not proceed with the UK Isa due to mixed responses to the consultation launched in March 2024.
The UK Isa was announced in former Tory chancellor Jeremy Hunt’s Spring Budget in March.
The idea was to bring in this new Isa in the form of an extra £5,000 tax-free allowance to encourage UK retail investment.
However, in September Reeves scrapped the plans.
The Treasury confirmed in today’s document that it would not be going ahead with a launch, as it had received “mixed responses” to the consultation.
It also said annual subscription limits will remain at £20,000 for Isas, £4,000 for Lifetime Isas and £9,000 for Junior Isas and Child Trust Funds until 5 April 2030.
Nothing was mentioned about a much-called-for simplification of the UK’s Isa regime.
Royal London director of policy and external affairs Jamie Jenkins said he “sympathises” with the idea that the entire Isa system should be reviewed, rather than the government making “piecemeal changes”.
“I agree with those who argue that we have too many Isas, and they’re overly complex,” he told Money Marketing.
“A broad simplification addressing these issues holistically would be the right approach, rather than making fragmented adjustments.
“However, there could have been significant shifts in Isas, but we didn’t see any of that.”
He said he would not be surprised if Isas are picked up separately by the new government, under the auspices of productive finance.
“The chancellor will no doubt be setting out her views on productive finance for pensions. Maybe that starts a conversation on Isas as well,” he added.
AJ Bell director of public policy Tom Selby agreed, saying the decision to maintain the former government’s plan to scrap the UK Isa could “pave the way” for Isa simplification.
“The proposed British Isa was a political gimmick that was always doomed to fail in its objective of boosting investment in UK Plc,” he insisted.
“What’s more, it would have layered extra complexity on an already complicated Isa landscape.
“Rachel Reeves’ decision to ditch the ill-thought-out proposal is the right one and should pave the way for radical Isa simplification.”
Selby suggested merging cash and stocks and shares Isas would be the “obvious starting point”.
“It is a reform that would make life easier for investors and would-be investors and could provide a significant boost to UK capital markets at the same time,” he said.
“Over the longer term, the government should consider whether the best features of the current Isa regime can be combined into a single Isa product.
“The benefits of simplification for consumers and the UK economy could be substantial.
“In particular, merging cash Isas and stocks and shares Isas – the two most popular Isa products in the UK – would make it easier for those holding money in cash Isas to transition towards long-term investing.”
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