Spring Budget 2024


"UK ISA: a shot in the arm or sugar pill?"

Spring Budget 2024

Spring Budget 2024

It has come to pass that the details of the Chancellor’s Budget are often leaked well in advance of the actual speech taking place. As such, it is often the case that there is little that catches the eye or causes us to sit up and take notice. This Spring budget falls into that category, save for the floated idea of a ‘UK ISA’, and we thought this was worth some further examination.

The details of this are yet to be finalised (and of course may never come to fruition depending on the shape of the general election due later this year) but in principle, the UK ISA will allow savers to invest a further £5,000 a year into their ISA on top of the allowance (currently £20,000) so long as those additional funds are placed in UK listed companies.

The reason behind this initiative is to try and boost growth in the UK economy and stock market. Even those with a casual interest in investments will know that the US stock index, particularly the ‘Magnificent 7’, has been the leading light of returns for the past decade. The quid pro quo to this has been that UK companies have spent the same period in the doldrums. It is quite alarming to know that the FTSE 100 in its entirety now has a combined market value lower than Microsoft on its own!

With the interest rate and inflation environment as it is, there is little opportunity to boost the economy by cutting taxes, so alternative strategies are required. Allowing investors to make further savings contributions to UK listed companies is one such solution.

But does it go far enough? According to the most recent statistics available, 1.6 million UK citizens made a full ISA subscription of £20,000 in the tax year 2020-21. That is around 2.4% of the population. This is a very narrow part of the total population, but if each of them could save a further £5,000 in UK companies, that adds a £8bn to the UK stock market. Not an insignificant number, but at the best of times it can be difficult for individuals to materialise an additional £5,000 – never mind when affordability is being squeezed, and capital gains tax allowances are about to enter an all-time low. As is so often the case, the Chancellor gives with one hand, but snatches back with the other.

It is also worth noting that almost half of all ISA investments are currently in UK listed stocks, so this government incentive may not be changing behaviours which are already inherent.

Of course, as investment professionals we are keen to see any shot in the arm to ailing markets, and also boosts to the tax efficiency of your investments – we wait to see how this tabled initiative pans out.

 

The views expressed are those of Thorntons Investments.  Although all care is taken to ensure the accuracy of facts, absolute accuracy is not guaranteed. The contents of the article are solely for information purposes and are not intended as investment advice or a recommendation to buy or sell securities.  Opinions expressed are subject to change without notice.  The value of an investment and income from it can fall as well as rise, past performance is no guarantee of future performance and you may not get back the amount originally invested

 

 

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