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Can a British ISA save London's stock market? | Bonds & Ballots
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Oct 7, 2024
Jeremy Hunt unveiled a more muted budget than some had expected on Wednesday as he slashed national insurance again, scrapped non-dom tax status and tweaked child support thresholds. Among the major changes for financial services were plans for a new private stock market, pension fund reform and perhaps most eye-catching a British ISA. But is it all going to shift the dial for the embattled City of London? In this week's Bonds & Ballots, City A.M. asks: did Jeremy Hunt do enough for UK financial services? And will a British ISA really boost London's markets? Get more of City A.M. 👇 🌐 http://www.cityam.com X(formerly Twitter): http://twitter.com/CityAM Facebook: http://www.facebook.com/cityam Instagram: http://www.instagram.com/city_am LinkedIn: http://www.linkedin.com/company/cityam #springbudget #isa #jeremyhunt #tax #taxcuts #uknews #ukeconomy #trendingnews #trending #personalfinance #businessnews #business #interview Produced by: Charlie Conchie, Joseph Curay Teneda, Emmanuel Nwosu
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0:00
Jeremy Hunt unveiled a more muted budget than many had expected on Wednesday
0:05
He cut national insurance again, scrapped non-dom tax status and tweaked child support thresholds
0:11
But after the business bonanza at the autumn statement, this one has left the city feeling slightly less fulfilled
0:17
Among the policies in there for UK financial services was pension fund reform
0:22
consultation on a new private stock exchange for London, and perhaps most eye-catchingly of all
0:28
a new Great British Issa in the works. But what does this all actually mean for the city
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I'm Charlie Conchie, Chief City Reporter at CityAAM here with our Bonds and Ballets budget special
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where we'll be digging into some of those policy measures for the square mile
0:42
and looking in particular at the Great British Issa and what it will mean for UK investors
0:47
In just the moment, Angi speaking with Sri Kachavindan, a senior economist at Aberdeen
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to get her views on where the hunt went far enough and what the British Issa might mean
0:58
If we just look at this is specifically as a sort of city business, financial services, budget
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we obviously had quite a big business-focused autumn statement. Did this deliver in terms of what the city's looking for as a company, was Aberdeen, please
1:17
with what this provided? What was your take on that? I think in terms of city reforms, there was very little in there
1:25
There was obviously one of the key measures would be, the introduction of a British ISO, so a tax and saving investment product
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And we all really have the £20,000 ISO allowance. There's junior ISAs, and this is an additional 5,000 on top of that
1:45
And it's great to try and incentivise investors into directing those funds into British shares
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That's great news, but it's quite minimal in terms of the impact. It's just the number of people who actually own Isis, who are actually on top of those investments, that investment culture
2:03
It's quite small in the UK relative to other countries. So in terms of the impact in investments into UK firms, it might be quite limited, unfortunately
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I think it seemed like that was almost the read of the city. We saw a couple of big retail investment platforms coming out and saying similar things yesterday as well
2:19
More of a signal of intent and, you know, a sign rather than actually doing anything meaningful, perhaps
2:24
and encouraging money into the market. Yes, I think there are other measures that would have been much more powerful, in fact
2:30
and something that we've been pushing for at Aberdeen would be the removal of the stamp duty on UK shares UK investment trusts That would be more important Because that was a cool you know quite aggressive campaigning from the city
2:44
in advance of the budget looking for that tax on share trading essentially to be scrapped
2:51
There was no movement on that yesterday. What impact would that have had
2:55
Do you think that is something we might see down the line potentially in future? Hopefully we do
2:59
That's definitely something that we've been pushing for. we recently put out a campaign to try and it's called the savings ladder
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to try and change the savings culture in the UK in essence, to really try and bridge the gap for a number of households
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There's also the gender investment gap as well to consider. So really trying to change the mindset there
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But one big penalty that UK firms face is this particular tax
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So it's been at 0.5% since 1986. If you were to choose investments, you don't face that tax if you wanted to choose a U.S. firm, you know, from the UK
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So that does add a penalty for investors. And also in some closed-end funds, you have a double penalty as well
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So you pay a tax when you invest in the investment trust, and then you pay a tax when the fund manager puts it in the fund
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So these are setbacks for the UK. and it does divert funds away from the UK to other firms
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And that's something that's a real disadvantage that could be changed quite quickly. I mean, the argument from the Treasury would be, of course
4:08
that it's a revenue driver. They don't want to be shutting off sources of revenue at this particular point in time
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Do you grasp that argument of their ways in which tax revenue be made up in other places
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perhaps if that particular tax was to be scrapped? I think in terms of longer term outlaw
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look, this could be much more meaningful as a revenue generator. I mean, the government want to invest, increase investment in UK firms
4:36
If you think about investment decisions, if your expected rate of return is less than the cost of capital
4:42
then you could see very, very worthwhile investments being pulled as a result of that
4:47
And this 0.5% sounds small, but it can be quite a meaningful difference in terms of that overall outlook
4:53
You can also think about, well, alternative taxes, you know, there's capital gains tax
4:59
it's inheritance tax, that could more than offset this 0.5% on stamp duty
5:05
So I'd say on balance, it's quite asymmetric in terms of the penalty for UK investment into
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UK companies. Why would you invest when you have this extra cost when you can just invest in European firms or US And if we just bring that back to the British Issa as well So the overall impact from your view from Aberdeen view would be scrapping stamp duty
5:28
would be a far more meaningful play than introducing a British Issa
5:32
Yes, I think the British Issa helps in terms of that overall savings culture
5:36
If people can see that, okay, here's a tax efficient way of investing
5:40
That's great news. but it's not going to have the big impact
5:44
given that it's a smaller proportion of people who are attuned to these measures
5:50
And so it's overall shifting that savings culture, which involves making these reform measures
5:57
but also involves campaigning as well in education and really flagging the opportunities
6:02
and the opportunity cost of not investing. Sri, they're giving her view on whether these changes
6:06
are really going to actually be meaningful for the city. She was quite clear that stamp duty
6:11
eradication might have been more meaningful for actually getting investment flowing into the market
6:15
than a British Issa. But let's get into some of the detail of what a British Issa will do and what it will
6:21
actually mean. Elliot Gulliver Needham is going to join me in just a second, City Am's investment
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reporter who has been following all the reaction and updates on the British Issa over the past
6:29
couple of days. So Elliot, British Issa, one of the big city focused policy to come out of the
6:36
budget yesterday, ostensibly a sort of moved to get more money flowing into the stock market by British
6:40
investors. Can you just take us through first of all, I suppose, what the changes will actually mean
6:44
and what a British Issa will be? Yeah, sure. So obviously you have the normal ISA where you can
6:50
invest 20 grand a year without having to pay tax on the returns. This will be kind of an addition
6:56
to that. You can invest an extra five grand, but it has to go towards UK equities. And it's been
7:03
pitched for a while since kind of September last year. There were rumours it was going to be in
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the autumn statement, but then it was left out. And now, it's been pitched for a while. And now, it's been pitched for a while. And
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it's coming in. Finally getting it. And timelines-wise, are we expecting it this year
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What does it look like? So there's a three-month consultation. So that will be wrapping up in June
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And then it's really up to the government taking on board of those ideas, figuring out
7:24
how long it will take. So we don't have a specific date about when it will be coming in, but we know when we'll
7:28
start to get a sense of what exactly the specifics will be. I mean, we touched the top there
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The purpose of this, it's been very much packaged as a move to get money flowing into
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UK equities. Yeah. Is that actually likely? Does it seem like this is going to be, you know, the panacea to the troubles facing the stock market at the moment
7:45
It seems unlikely. A lot of people have been calling it out as a gimmick saying that you know only 15 of people actually top up their ice at the full 20 grand So you going to have a very small pool of people going up to the 25 The people who have been supportive of it rather than saying yes this is great This is going to solve our problems They using words like
8:06
good step in the right direction, right? So I think it's reassuring for the city to see that the government
8:12
obviously knows this is a problem, but will this solve everything? Almost certainly not
8:18
I mean, investment platforms obviously, I suppose you could say, the beneficiary of this kind of change
8:24
What's the reaction being like actually in the city? You mentioned there, there's sort of lukewarm a step in the right direction
8:31
Do they think it is meaningful? Well, I mean, AJ Bell, their CEO was very vocally against it, calling it doom to fail and useless
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Holcroix lands down has been, like you said, lukewarm on it. I think people are happy that the government is paying attention
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but I think they would rather, they put their efforts elsewhere, you know, focus on getting
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more IPOs in the stock market, getting people more excited in other ways than this idea
8:59
You know, we touched on the lukewarm reception from the big investment platforms
9:04
Has there been other pockets of, you know, cheering and hurrah over the fact that this has
9:09
actually finally been announced then? Not really. I mean, I haven't seen anyone who is really, really, really excited about this
9:16
It feels a lot more like people are glad that they're doing something and something I guess is better than nothing
9:23
But then others are saying, you know, this is adding more problems to the already complicated Iso system
9:29
I mean, the complicated ISIS system is an important one to touch on. It's already a pretty fractured landscape, quite difficult to navigate
9:36
Is this essentially just going to add to the options and the confusion
9:39
Yeah, no, I definitely think it's adding to the confusion. I've had people personally messaging me, asking me to explain
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it. I mean, when it was originally being rumoured in the autumn statement last time
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instead the Chancellor brought in these reforms to simplify the ISIS system, which I think was widely
9:56
recognised a good thing. But to simplify it and then the next time to add more complications
10:02
it seems kind of complicated, right? Elliot, there were some pretty clear views on what the city thinks of the new British ICE and
10:10
whether it will really move the dial and some troubling questions perhaps around whether this is
10:13
just going to add to complexity facing retail investors. So what do you think? Is the British
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Issa really going to move the dial on investment into the city? Let us know what you think
10:23
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