Cutting ISA cash allowance could bring £16bn into UK equities each year |
The government could bring a much-needed boost to UK markets with one simple, tax-neutral measure, argues Richard Staveley, manager of UK small-cap investment trust Rockwood Strategic.
ISAs are undoubtedly much loved in the UK, with more than 22m accounts and around £775bn in total assets, which exceeds the amounts saved into defined contribution pension schemes.
Why? It’s plain and simple – the tax break is highly attractive. Investors don’t pay income or capital gains tax on ISAs, meaning that any dividends or profits are tax-free. Compounding returns can be powerful, a key driver to building long-term savings and wealth. However, political tinkering has created a complicated landscape of multiple ISA variants and the original remit of ISAs’ forerunner (the PEP), which aimed to facilitate direct investment into the UK stock market, has been lost.
A healthy, robust stock market is critical for the future success of the UK. A transparent, well-regulated, large and liquid market for companies to scale and raise investment will enable home-grown talent and entrepreneurs to remain in, and drive the growth of, our economy. The market is populated by a very diverse range of businesses, employing millions, paying considerable corporation tax, VAT, Employer’s National Insurance and supporting huge networks of suppliers and professional service advisors.
However, for many years money has flowed out of our stock market; first into bonds to support changing pension liabilities and risk management requirements, secondly into global shares and thirdly into other asset classes altogether.........