Experts have welcomed reports that the Labour Government is set to scrap the British ISA scheme announced at the Spring Budget.
In March, then-Chancellor Jeremy Hunt announced the new savings product and said it would will allow Britons to have an extra ISA – a tax-free savings account – allowance of £5,000 a year, invested in UK equities, taking their annual limit to £25,000.
But the plan was widely criticised by investment and finance experts at the time.
The Government was warned savers may end up being able to invest in firms that do not actually do business in the UK, and was also told that it should have focused on raise the £20,000 ISA allowance rather than introducing extra elements to investing rules.
Now, a report from the Financial Times suggests Labour will ditch the policy, though the Treasury has so far declined to comment.
Experts have welcomed the reported scrapping of the product, which they have said was “rife” with issues.
Shaun Moore, tax and financial planning expert at Quilter said: “Labour’s reported scrapping of plans to create a British ISA is a sensible move. The ISA is a simple idea, a tax efficient place to grow your wealth, however, with various additions over the years it has now become a confusing area of personal finance. If the British ISA did see the light of day, it would have further muddied the water.
“The British ISA was rife with issues and the proposals ran the risk of consumer confusion or poor outcomes. The reality is, the UK has a cash savings problem and too much money is sat in low yielding cash ISAs, doing very little to help them or the economy.
“Finding ways to get that money invested for the long-term would be far more beneficial to the UK as a whole without the need for the creation of an extra allowance.”
Michael Summersgill, CEO of investment platform AJ Bell added: “The UK ISA was a political gimmick that was doomed to fail in its objective of boosting investment in UK Plc.
“The new government deserves huge credit for consigning this ill-conceived idea to the policy dustbin and will hopefully now take a more sensible, long-term approach to ISA reform than their predecessors, focused on simplification for the benefit of consumers.”
On social media, tax expert Dan Neidle wrote: “This is good news – the British ISA was a bad idea that would’ve added a whole bunch of complexity to support an index that’s not particularly British.”
Most people can save £20,000 a year in an ISA at present, meaning they do not pay tax on their savings interest, as they would with a more typical account.
With most savings accounts, you pay tax on interest over £1,000 if you are a basic rate taxpayer – earning over £12,570 – and £500 if you’re a higher rate payer – i.e if you earn over £50,271.
If you are an additional rate payer, earning over £125,140, you pay tax on all your savings interest.
HM Treasury was approached for comment.