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Global fund managers have stepped up pressure on UK chancellor Rachel Reeves to “simplify” Britain’s tax-free savings regime by scrapping the popular cash Isa product, in the latest attempt to funnel more money into London’s stock market.
Senior executives from BlackRock, Fidelity International, Schroders, Abrdn and some of the world’s largest banks met Reeves on Wednesday to discuss how to make the UK financial services industry more competitive and boost Britain’s economic growth.
One person familiar with the details of the meeting said there was a discussion about simplifying tax-free savings, with the aim of encouraging more individual investors to put money into stocks and shares — a move that would spell the end of the standalone cash Isa but could help galvanise domestic equities.
The move comes after the Financial Times revealed last month that big City companies had urged Reeves to scale back tax breaks for cash Isas, paving the way for the biggest shake-up of the savings market since the products were first introduced in 1999.
Reeves’ allies say the chancellor is interested in reforms to Isas. “She’s open to ideas that increase investment in UK equities. This issue is coming up a lot.”
Treasury officials confirmed the meeting at 11 Downing Street included a debate on how to boost retail investment in the UK economy, with Reeves “listening to ideas”.
The UK has four main Isa products, including the cash Isa — by far the most popular product, with almost £300bn in total savings. Isas allow individuals to save and invest up to £20,000 a year free of income and capital gains tax.
The chancellor does not want to deter small-scale savers from “putting something aside for a rainy day”, according to her allies, but she believes that they could be getting better returns on their savings.
Senior City executives have argued that having numerous Isas deters people from investing, calling for just one Isa in which people can hold stocks, shares and cash.
Fidelity International, which has $893bn in assets under management, would not comment on the meeting but told the FT ahead of the gathering that it was calling on the government to create a single, unified Isa product.
Fidelity said this would allow cash, stocks and shares to be held together in one account, with the aim of making it easier to invest, and proposed that the cash portion should be limited to £4,000.
“We have become a nation of savers, not investors,” said James Carter, head of platform product policy at Fidelity International.
“Collectively, we all need to do more to educate society on risk and return. The only place this can come together is with government supporting the right objectives and balance to deliver the outcomes that our society needs.”
Fidelity International estimates that having a single Isa product could create 6.4mn new investors — amounting to about 12 per cent of UK adults. The fund manager estimates that twice as many consumers hold money in a cash Isa than a stocks-and-shares Isa.
However, the idea of scrapping the cash Isa has been met with criticism from consumers and personal finance experts, as well as accusations of vested interests. Banks generate fees by advising companies on raising money by selling shares to institutions and individuals, while asset managers could benefit from more money flowing into UK equity funds.
Emma Reynolds, the new City minister, told a House of Lords committee earlier this month: “Why have we got hundreds of billions of pounds in cash Isas? We have failed to drive an investment culture.”
Paul Thwaite, chief executive of NatWest, said last week that he would “encourage any review of savings and investments”, including Isas.
“I think Isas have proven very successful . . . They have an important role to play, but I am open to reviewing whether how they currently operate is fit for purpose for today’s savings and investment markets.”
Reeves is holding a series of meetings with leading City figures to develop a “financial services growth and competitiveness strategy”. Financial services are one of eight key “growth” sectors identified in the government’s industrial strategy.
A common theme of these meetings has been the government’s pledge to sweep away regulation, including making it easier for financial firms to recruit top talent from around the world.
Additional reporting by Akila Quinio
