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The chief executive of AJ Bell, one of the UK’s largest retail investment sites, has warned the government against cutting the tax-free cash Isa allowance as it would be “negative” for savers and “ineffective” in channelling more money into investments.
Michael Summersgill told the Financial Times that he was “fundamentally opposed” to reducing the amount savers could hold in cash Isas as it would “risk undermining people’s trust” in the industry and “would not have the desired effect of getting people investing”.
His comments come as the government holds meetings with the City over reforming the UK’s Isa regime in an attempt to encourage more people to invest and support the domestic economy.
The FT revealed this month that the Treasury will launch a consultation on overhauling the Isa market. UK savers hold £300bn in cash Isas, making it by far the most popular of the four main types, which include one for stocks and shares, a lifetime offering and an innovative finance product. Individuals can hold up to £20,000 a year in a mix of cash and investments free of income and capital gains tax.
But ministers are considering reducing the cash amount following calls from parts of the City to funnel more money from savings into London-listed stocks to help support the ailing market.
“If we set an arbitrary limit [on cash] we know that’s going to be wrong for various customers,” said Summersgill. “It doesn’t encourage people; I think it just annoys people.”
He added that, rather than setting limits, the government should “create a set of rules and an infrastructure” that allowed businesses that were serving these customers to “engage with them and help get that balance right”.
AJ Bell, which offers investment Isas but not the cash version, has lobbied for the creation of a single product within which people can more easily switch between cash and investments. Summersgill said that providing financial “guidance” and education would help customers “to get the balance between cash and investments right”.
“We do not need to change how retail investors behave: they are big supporters of the UK economy,” Summersgill said. “Over 50 per cent of the money that our DIY customers put into stocks-and-shares Isas goes into UK assets . . . they are massively exhibiting that home bias.”
Creating one single Isa for cash and shares, Summersgill argued, would encourage more competition between providers to offer attractive rates of interest on cash.
Chancellor Rachel Reeves told the FT this month that, although there is a £20,000 limit on the total annual amount saved in Isas, the Treasury wanted to “get that balance right” between the level of savings and investments.
She added that she wanted to create “more of a culture in the UK of retail investing” in order to “earn better returns to savers and to support the ambition to grow the economy, creating good jobs right across the UK”.
City minister Emma Reynolds has held roundtables in recent weeks with banks and investment platforms and other stakeholders, to discuss Isa reform and whether the cash allowance should be restricted, according to people familiar with the meetings.
