AJ Bell boss warns Chancellor’s Isa reforms ‘doomed to fail’ in encouraging folks to speculate

The boss of one of Britain’s biggest stockbrokers has warned that Isa reforms, unveiled in the Autumn Budget by Rachel Reeves, are ‘doomed to fail’ in their aim of getting people to invest. 

In a letter sent to the Chancellor, Michael Summersgill, chief executive of AJ Bell said: ‘It is my strongly held view these unwieldy proposals are doomed to fail in their aim of encouraging more people to invest for the long term. ‘

In November’s Budget, the cash Isa allowance was slashed to £12,000 a year from its current level of £20,000 from April 2027, but only for under 65s.

Savers over the age of 65 will still be able to use the full cash Isa allowance to save £20,000 a year tax-free.

From 6 April 2027, savers under the age of 65 will only be able to put a maximum of £12,000 into a cash Isa and if they want to use the whole wrapper, the remainder – £8,000 – can go into stocks and shares.

Meanwhile, the full £20,000 can still be used for stocks and shares.  

The boss of stockbroker AJ Bell says cash Isa reforms are doomed to fail in getting people to invest

Mr Summersgill’s comments come after MPs on the Treasury Select Committee last week said they ‘remain to be convinced’ the Government’s cut to the cash Isa allowance will spark a culture of investing in stocks and shares instead of keeping savings in cash.

The Chancellor’s decision to cut the cash Isa allowance is part of a plan to divert billions of pounds sitting in savings accounts into investments.

But Mr Summersgill argues that cutting the cash Isa allowance is unlikely to cause savers to switch to investing. 

He says: ‘There is no evidence this will materially boost retail investing – indeed, a survey conducted by AJ Bell found the vast majority would simply opt for cash alternatives, such as NS&I bonds, or save in a taxable cash account.’

In addition to the cash Isa allowance being cut to £12,000, HMRC is considering introducing a charge of up to 22 per cent on an interest earned on cash held in a stocks and shares Isa. 

Investment platforms allow investors to open stocks and shares Isas with cash that is waiting to be invested, or sell investments and hold money temporarily as cash in their account.

This opened up the possibility that cash savers with more than £12,000 to shelter, could have skirted around the cap by opening a stocks and shares Isa with the excess £8,000 and leave their money parked in cash.

Investors hold cash in stocks and shares Isas for a variety of reasons, for example to park money in cash for a period of time awaiting investment, or because they are nervous and want to move to cash to weather stock market storms. 

Mr Summersgill adds: ‘The intention to tax uninvested cash held in stocks and shares Isas is worrying as it ‘punishes retail investors for using the stocks and shares Isa the way it was designed to be used.

‘It could potentially mean stocks and shares Isas which allow people to hold cash can no longer be marketed as “tax-free’” weakening the appeal of the most popular investment account in the UK market.’