Ritika Janiya
Remember when Jeremy Hunt came up with the idea of a “British Isa” to help the UK stock market? Well, it looks like that idea is about to be scrapped by Rachel Reeves, the new Chancellor. And you know what? That might be a good thing.
Here’s the scoop: Jeremy Hunt’s British Isa was supposed to give people a little extra cash to invest in UK shares, hoping it would boost the stock market. But the new Chancellor, Rachel Reeves, thinks this plan was too complicated and wouldn’t actually help much.
So, what was the British Isa all about? Jeremy Hunt’s idea was to add an extra £5,000 on top of the current tax-free savings limit of £20,000, but only for UK shares. If you already max out your £20,000 allowance each year, you could put this extra £5,000 into UK stocks without paying tax. Sounds good, right?
Well, not quite. Only people who have enough money to use up their full £20,000 limit would benefit from this £5,000 bonus. That’s about 800,000 people in the UK. Even if all of them took advantage of the extra £5,000, it would only mean an additional £4 billion going into the UK stock market.
Now, £4 billion might seem like a lot, but it’s actually just a tiny part of the total UK stock market, which is worth over £2 trillion. Plus, many people already invest in UK shares through their regular Isa, so this extra £5,000 wouldn’t really make a big difference. It would just be a bigger tax-free allowance for people who are already investing in UK companies.
If Jeremy Hunt really wanted to make a splash with the British Isa, he could have been bolder. For example, he could have made the entire Isa allowance UK-only. This would mean that all the money in the Isa would have to be invested in UK companies, not just an extra £5,000.
Or, as suggested by a think tank called New Financial, he could have increased the total Isa allowance to £25,000 and made half of it UK-only. This could have brought in an extra £10 billion a year into UK stocks. That sounds like it could really make a difference!
However, there’s no sign that Rachel Reeves is interested in these more radical ideas. She’s more likely to focus on other ways to boost the UK stock market. For example, one way to help is to encourage UK pension funds to invest more in UK companies. Over the past 20 years, these pension funds have mostly been selling off their UK shares, which hasn’t helped the market.
The good news is that the UK stock market is now seen as relatively cheap compared to the US market. This means there might be more interest in UK stocks, especially if pension funds start paying more attention.
In conclusion, scrapping the British Isa seems like the right call. It was a complicated and not very effective plan. Instead, focusing on getting pension funds to invest more in UK companies and recognizing the relative value of the UK stock market might be better ways to wake up the market and get it moving.
So, goodbye to the British Isa, and hello to smarter strategies for growing the UK stock market!
