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City veteran Martin Gilbert said the government should cut the annual cash Isa allowance and force investors to hold half of their stocks and shares product in UK equities.
Gilbert, who is chair of Revolut and founded Aberdeen Asset Management, told the FT the government should require people using tax-free stocks-and-shares Isas to back British companies, to help funnel more money into London-listed stocks.
“I’m a firm convert that we should still have the cash Isa, but it should be limited,” he said. “And if the government is giving us tax relief they may as well force us to put it in British shares, rather than [a global] tracker fund.
“I want a percentage into British stocks . . . especially mid-cap and small- cap, because we just don’t have enough savers in this country buying shares,” he said.
Gilbert suggests a limit of “at least 50 per cent” of the annual stocks-and-shares Isa allowance should be forced into UK stocks. “They’re giving a tax break, they can dictate where that money goes.”
His comments come as the government considers cutting the annual cash allowance in the Budget at the end of the month from £20,000 to £12,000, or as low as £10,000, the Financial Times first reported.
The government is also encouraging Isa providers to revamp their stocks-and-shares Isa products on a voluntary basis to funnel more money into London-listed equities, according to people familiar with the plans. This could include a “default” or pre-packaged Isa that allocates about 25 per cent to UK equities, with the remainder available for international stocks.
At present, savers can put up to £20,000 a year tax-free into Isas, whether in shares or cash or a combination of products, which are exempt from income or capital gains tax. Cash Isas are the most popular product, housing an estimated £360bn in investments.
But building societies in particular have hit back against the plans, warning that cash Isas form a part of their funding. Cutting the annual allowance could limit their ability to offer riskier mortgages, such as home loans to first-time buyers, they warned.
“I think if building societies are having to rely on cash Isas, there’s something wrong with the business model,” Gilbert said.
“Also, the portion above the £10,000 a year of cash Isas is the very wealthy, it’s a small percentage. So it’s a ridiculous argument in my opinion — we’re not saying abolish the cash Isa.”
In support of his argument for compelling investors to hold British stocks, Gilbert referred to previous “personal equity plans” that were sold until 1999, which had a minimum amount in UK equities.
Matthew Beesley, chief executive of fund manager Jupiter, said: “Anything the government can do to nudge people to invest more to secure their financial futures should be welcomed . . . More long-term money invested in British companies can only be a good thing.”
A letter signed by 250 business leaders this week flagged to the chancellor that PEPs used “tax advantages to both incentivise saving and increase investment in the UK economy” and could help to “drive higher levels of retail investment”.
Gilbert added: “I just hate to see the hollowing out of UK mid-cap and small-cap stocks,” referring to the lack of money flowing into shares in this sector. He said these stocks were “so cheap, that every week, there’s one being taken [over] by private equity”.
