- Rachel Reeves unveils Leeds Reforms aimed at ‘unlocking retail investment’ as part of her Mansion House speech
- Government commits again to ISA reform aimed at boosting retail investing…
- …but only the inclusion of Long-Term Asset Funds (LTAFs) in Stocks and Shares ISAs is announced today
- Banks will ‘send investment opportunities’ to savers in low-interest accounts
- Industry-led ad campaign will help promote the benefits of long-term investing
- Financial services firms, including AJ Bell, have volunteered to support the campaign
AJ Bell CEO, Michael Summersgill, comments:
“Kickstarting an investing revolution could boost household finances and UK capital markets in the process. With at least £100bn sat in Cash ISA accounts held by savers with £20,000 or more in cash but no ISA investments, there is a huge prize at stake if government gets this right.
“Crucially, government must recognise that this can’t be achieved by diktat. It may be tempting to try and marshal ISA contributions through rules and regulations – such as mandatory quotas on UK assets or restrictions on cash contributions. But this simply won’t work.
“Government should start from scratch on the best design of the ISA system. Endless tinkering has left consumers facing a myriad of divisive choices, with many simply opting for the easy choice: cash.
“Instead, a simpler system with a single ISA account would allow consumers to glide between saving and investing seamlessly. Removing friction between cash and investment accounts would create a more flexible system, lifting the psychological barrier between saving and the stock market.”
AJ Bell director of public policy, Tom Selby, adds:
“Today’s announcement from the chancellor sends a clear message: we need to get Britain investing.
“ISAs are clearly seen as a crucial route through which to get the public investing for the long-term, helping boost their household finances and support capital markets in the process.
“The devil is in the detail, however, and there still isn’t much of that to get stuck into. For months rumours have suggested the government may look to cut the cash ISA allowance in the hope that a whack-a-mole approach will see some of that excess cash pop up in stock market investments.
“Thankfully, that idea appears to have been shelved, at least for now. Instead, we need to start from scratch when it comes to ISA reform. ISAs are enormously popular, but over time the landscape has become increasingly complex, with multiple different ISAs each with their own rules and regulations.
“A starting point on the road toward simplification should involve merging Cash and Stocks and Shares ISAs, ending the arbitrary distinction between the two to create a unified ISA product serving the needs of the vast majority of ordinary people.
“It makes sense to have a best of both approach – cash for a rainy day and investments for long-term growth. But just 16% of ISA holders today have both a cash and stocks and shares account. That’s a clear sign the system isn’t working and is symptomatic of an ISA landscape which presents what appears to many people as an either-or choice between cash saving and investing.
“Investing can deliver long term rewards. A £10,000 deposit placed in the typical Cash ISA ten years ago would today be worth £11,513, compared with £17,999 if that money had instead been invested in a FTSE All Share tracker*. However, many people miss out because they never find a way to get started investing.
“Evidence shows that our initial financial choices tend to be sticky. People get into the habit of one thing and often ignore the alternatives to their cost. We need to smash the psychological barrier between saving and investing, starting with a crucial symbolic move of bringing cash ISAs and stocks and shares ISAs together into a simple product.”
Retail investing campaign
“Hoping to revive the spirit of Sid, the government intends to launch a public campaign to promote investing. This could be hugely powerful as a soapbox for shouting far and wide about the benefits of investing.
“Investing is often seen as something that is only for relatively wealthy people, or something which you need a great deal of financial knowledge to get involved in. In fact, it is relatively easy, with straightforward products designed for ordinary people. And you don’t need tens of thousands of pounds to get started.
“This campaign could help to break some of the taboo around investing and encourage more people to get started. There is still a lot of work to be done to develop the plan, but we’re pleased to be working alongside other firms, the Money and Pensions Service, the Investment Association, FCA and Treasury to get the project off the ground.”
AJ Bell’s ISA campaign work
AJ Bell has long campaigned for simplification of the ISA system, working with both this government and the previous to make it easier for people to save and invest. In its One ISA paper launched in 2023, the business highlighted the complexity of the current ISA system with six different products, and proposed consolidating all existing ISA variations into one single ISA product.
Before winning the election last year, Labour made clear its intentions to simplify the ISA system to try and foster a culture of retail investing in the UK. AJ Bell has led calls on how the government should do this, initially by merging Cash and Stocks and Shares ISAs and removing barriers to investing as a first step towards consolidation of the ISA market.
At the Spring Statement in March this year, Rachel Reeves again outlined the government’s ambition to reform the ISA system, with a focus on getting the ‘balance right’ between cash and equities. AJ Bell subsequently urged the government to reform the system for the benefit of consumers by:
- Radically simplifying the upfront choice available to investors, initially by merging Cash ISAs and Stocks and Shares ISAs into a single main ISA product
- Introducing improved help for savers and investors through ‘Targeted Support’ reforms
- Government should remove the disincentive to invest in UK Plc by scrapping stamp duty on UK shares bought through ISAs – a reform which would cost around £120 million
It then emerged that the government was considering cutting the tax-free allowance of the Cash ISA as part of this, but AJ Bell consumer research showed that only one fifth of Cash ISA holders would invest in the stock market if the Cash ISA allowance was cut. This illustrated that tinkering with the Cash ISA was unlikely to achieve the chancellor’s stated aims of boosting economic growth and fostering a culture of retail investing in the UK.
A recent behavioural economics review commission by AJ Bell illustrates the impact divisive choice and friction in the ISA market has on consumer behaviour. Faced with excess complexity, people often choose the path of least resistance in the form of cash saving. Removing complexity could play a crucial role in smashing the psychological and material barriers between saving and investing, helping to unleash a retail investing revolution.
*Source: Bank of England, FE, total returns 31/05/2015 to 31/05/2025, FTSE tracker fund is iShares UK Equity Index D