UK Government Scraps Plans for ‘British ISA’: What It Means for Savers

The UK government has officially dropped plans for a new ‘British ISA’, initially aimed at boosting the economy by funneling savers’ cash into London-listed stocks. While the previous Conservative government had designed the new savings product to offer an extra £5,000 tax-free allowance, Labour has abandoned these plans over concerns that it would complicate the individual investment market.

What Was the British ISA?

The British ISA, proposed in the March 2023 budget by former Chancellor Jeremy Hunt, aimed to encourage UK citizens to invest more in domestic stocks and support UK businesses. The idea was that this would help reverse a growing trend where investors are shifting their focus to global shares, leaving UK-listed stocks to underperform.

Labour Abandons the Plan

Initially, Labour had “no plans to drop the British ISA” in the run-up to the general election. However, after taking office, the current government, led by Chancellor Rachel Reeves, has decided not to move forward with the new ISA product. Instead, Labour’s focus appears to have shifted towards a broader strategy for supporting UK equities. Reeves has introduced a blueprint aimed at directing defined contribution pension funds into a wider range of UK assets. While this may be a positive step for UK businesses, it leaves everyday savers without the direct benefits the British ISA would have offered.

What Does This Mean for UK Savers?

For savers, the cancellation of the British ISA means missing out on the additional £5,000 tax-free allowance that could have provided more opportunities for investment in UK equities. The current ISA system remains unchanged, allowing up to £20,000 to be saved tax-free each year across various ISA types. Although Labour’s new measures may stimulate the UK stock market, they focus on pension funds rather than personal savings. This change does little to offer immediate incentives for individual savers to invest in UK-listed stocks.

Conclusion: What’s Next for UK Savers?

The scrapping of the British ISA may be disappointing for those hoping to invest more tax-free in UK stocks, but the existing ISA system still offers substantial benefits. While Labour has chosen a different path to support UK equities through pension funds, savers can continue to grow their wealth tax-free through the current ISA allowance.