Rachel Reeves is preparing to review the ISA market in weeks to encourage savers to pass more tax-free cash money from UK shares to UK shares, according to people familiar with the matter.
Industry insiders said the Treasury will begin consultations to learn how to reform the ISA regime in the UK to understand the entire city of London as the Prime Minister tries to strengthen what she calls the "retail investment culture."
The move may pave the way for one of the biggest changes in the ISA market since its inception in 1999, after some large city companies called for limiting the amount of cash tax-free.
There are four major ISA products in the UK, including cash ISA, by far the most popular product that can currently save £30 billion. The ISA allows individuals to save £20,000 per year on free income and capital gains tax.
The treasury documents are expected to be issued within weeks and are likely to speak at the Mansion House in Reeves in July, when the government aims to release its financial services growth and competitiveness strategy.
"The mansion is about making more money from the UK," said one person familiar with the plan, adding that any reforms made by the consulting can be done in Reeves' fall budget.
The Treasury said “no decision was made” but the government “is looking for options to reform the ISA to bring the balance between cash and stock to the balance”.
Reeves said this month she hopes to create more retail investment culture in the UK as seen in the United States” to help savers get better returns and “support the ambition to grow the economy.”
The Financial Times reported in January that city companies urged Reeves to cut back on the ISA's tax break. Reservists put £4.2 billion into cash ISA in March, an increase of nearly a third from the previous year, according to investment website Hargreaves Lansdown.
Companies including insurance group Phoenix and London Stock Exchange Group told the Prime Minister in January that cash isas money can bring better returns for savers if they invest savers in stocks and stocks while supporting the growing stocks in London.
Fidelity International is one of the companies calling for a single ISA product where individuals can move between cash and stocks and stocks and recommends limiting the cash portion to £4,000.
Despite speculation, Reeves did not stipulate changes in his spring statement in March, although at the time the government said it was “looking for reform options” to “get balances between cash and stocks to earn better returns to boost savers’ returns, strengthen the culture of retail investments, and support the growth mission.”
Consulting should lead to “things more specific in the budget” in the fall, one industry figure said. They added: “We do know that the Treasury is eager to listen, so they may find that papers help formalize conversations and reduce the burden of meetings they are asked to.”
Tom Selby, director of public policy at investment website AJ Bell, said the government “is absolutely right to study whether the current ISA system is sufficient to foster a healthy investment culture in the UK”.
But Carol Knight, CEO of the nonprofit’s Investment and Save Alliance, said: “Cash ISA tax benefits won’t encourage people to invest more” and urged ministers to provide better support to the British to best utilize their savings.