Labour have backed the Government’s “British Isa” plans which will see investors given an extra £5,000 tax-free cash.
The new Isa will offer savers an additional allowance to invest in British stocks, but there had been speculation that it would be abandoned by a new Labour administration.
But a spokesman for Labour said the party has “no plans” to scrap the new savings allowance, which was announced by Chancellor Jeremy Hunt at the budget on March 6.
“Labour has no plans to drop the British ISA,” a spokesman told City AM. “Labour wants to make it as easy as possible for people to feel the benefits of saving and investing their money, including through increased utilisation of stocks and shares ISAs.”
A consultation into a British Isa launched in the spring but analysts warned at the time that it would be a “rounding error” and that ordinary retail investors were unlikely to see a big uplift as a result of the new allowance.
The consultation, which includes questions about whether ordinary shares in UK incorporated companies that are listed in the UK should be included, will close on June 6, but no announcement about when the products will launch has been made.
James Blower, of comparison website Savings Guru, said: “At this stage, I expect Labour are covering themselves as the consultation could be very positive and, if they are elected, there’s time then to shape what the British ISA looks like and how it works.”
Savers can already save £20,000 a year tax-free in Isas. They are able, as of April this year, to open as many cash or stocks and shares Isas as they like, as long as they don’t go over the total limit, although some platforms do not offer the new multiple accounts.
Savers can also save outside of Isa wrappers, but basic-rate taxpayers who earn more than £1,000 in interest annually, or £500 if they are a higher rate taxpayer, will pay tax on the interest they earn. Additional-rate payers receive tax bills for all the interest they earn.
Savings experts warned that the plans for a British Isa would need improvement to avoid confusion savings – and that the additional income it would generate would make little-to-no impact on the economy.
Tom Selby, of broker AJ Bell, said: “The absolute maximum that could have flowed to UK PLC as a result of the British Isa was around £4bn a year, which might sound like a lot but in the context of a £2tn stock market is a pittance.”
He added: “What’s more, behavioural adjustments would likely have significantly neutered its impact, while over the long term the added complexity created would inevitably have put potential investors off Isas.”
Susannah Streeter, head of markets at investment platform Hargreaves Lansdown, described the policy as “illogical” as stamp duty is paid on UK shares but not for overseas shares. She called on the next government to lift the ISA allowance instead.
Mr Streeter said: “Around 80% of shares held in Hargreaves Lansdown ISAs is already in UK companies and so the easiest way to promote further investment would be by simply lifting the ISA allowance, without creating a new product and greater complexity.
“At the same time stamp duty on UK shares is still paid within an ISA but not for overseas shares and levelling this playing field would boost UK equities further. It’s unreasonable and illogical for investors buying UK shares to have to pay stamp duty when overseas share trades are stamp duty-free.
“Alternatively, providing dividend or capital gains tax benefits for investing in UK stocks outside of ISAs would help.”
Others warned the policy risks leaving cash savers behind.
Anna Bowes, of comparison website Savings Champion said: “Cash savers will be very disappointed that there is no additional Isa allowance for them. Until 2014, cash savers were only able to use half of the Isa allowance, and once again they are being forgotten – which is a particular shame when interest rate hikes mean that savers are now paying far more tax on their savings.”
Both parties have been battling to prove that they could attract much-needed investment into Britain.
Rachel Reeves said in a speech on Tuesday morning that a Labour government would invest in British companies in order to “crowd in” private money, in an effort to boost growth.
The Labour Party was contacted for comment.
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