Encourage ISA investors to allocate more funds towards UK stocks, suggests Peel Hunt advisory.
Rewritten Article:
Want your savings to help the UK economy? That's the suggestion from Peel Hunt, a leading City investment bank. The bank believes that UK ISA rules should be revamped to compel savers to invest in British equities. This move, they claim, would be crucial for reviving London's struggling capital markets.
The cash limit for ISAs should be slashed from £20k to £5k to encourage a shift of savings into shares, according to a report by Peel Hunt. They also advocate for a "home bias" rule that would force a minimum 50% exposure to UK equities in stocks and shares ISAs.
The current ISA framework, utilized by millions of British savers, is considered to drain as much as £9.4bn from the UK exchequer in the form of tax reliefs. Charles Hall, head of research at Peel Hunt, asserts this is a "very wasteful subsidy."
"I like getting a tax break for depositing my ISA funds, but I think it's idiotic that I do," Hall told City AM. "It doesn't make sense, especially when resources are limited."
The bank's proposals come as the government is planning ISA reforms. Reforms are expected to include a drop in the cash ISA allowance and the discontinuation of the seldom-used Innovative Finance ISA. However, so far the Treasury has remained silent on proposals for a 'British ISA,' initially proposed by former Chancellor Jeremy Hunt, to propel investment into the UK.
Peel Hunt estimates that the 50% home bias requirement would guarantee a combined minimum ISA investment of £15bn into the UK each year. This investment could more than offset the roughly £8bn annual outflows from UK equity funds. British retail investors allocated a paltry 11.5% of their portfolios to UK equities in 2023.
Hall believes that a greater investment into UK equities would "change the game significantly" and elevate the UK capital markets.
"We've had a prolonged period where the UK equity market has lagged behind [but] a large part of that is due to capital flow; it's not actually because of the performance of UK companies," Hall said.
"If we started to see capital flowing into the UK market, we'll then witness a domino effect where more international money will pour in.
"You're cultivating a more lively listed market in the UK, and that means we will then witness more IPOs in the UK and a circular advantage -- something beneficial for the entire UK economy."
Chancellor Rachel Reeves voiced her support for promoting savings and investment, stating:
"Supporting people to save and achieve their aspirations is crucial. At the moment, there's a £20,000 limit on what you can put into either cash or equities, but we need to find the right balance.
"I want to foster a retail investing culture in the UK, similar to what exists in the United States, to improve returns for savers and support the ambition to stimulate economic growth, creating good jobs across the UK."
- Peel Hunt, a leading investment bank in the City, suggests updating UK ISA rules to mandate savers to invest in British equities, believing it will revitalize London's struggling capital markets.
- As part of their proposals, Peel Hunt suggests reducing the cash limit for ISAs from £20k to £5k and implementing a "home bias" rule, requiring a minimum 50% exposure to UK equities in stocks and shares ISAs.
- The current ISA framework, utilized by millions of British savers, results in an estimated £9.4bn tax relief drain from the UK exchequer, which Peel Hunt's head of research, Charles Hall, deems a "very wasteful subsidy."
- Hall asserted that the tax break on ISA funds doesn't make sense, especially when resources are limited, and he believes a greater investment into UK equities would "change the game significantly."
- The bank's proposals coincide with the government's planned ISA reforms, which include a drop in the cash ISA allowance and the discontinuation of the Innovative Finance ISA.
- Peel Hunt estimates that the 50% home bias requirement would guarantee a combined minimum ISA investment of £15bn into the UK each year, potentially offsetting the roughly £8bn annual outflows from UK equity funds.
- Chancellor Rachel Reeves supports promoting savings and investment, aiming to foster a retail investing culture in the UK similar to the United States, and she believes this will improve returns for savers and stimulate economic growth, creating jobs across the UK in 2023.
