British ISA Plan Met with Skepticism as Budget Unveils Targeted Equity Boost

93

UK investors have shown increased interest in stocks and shares-based funds, particularly in North American equities, while domestic portfolios continue to experience outflows. Calastone’s latest Fund Flow Index indicates a robust inflow of £2.66 billion into equity funds in February 2024, the highest in three years. The surge is attributed to the strong rally in the US market, driven by companies comprising the ‘Magnificent Seven,’ including Alphabet, Apple, Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. These companies have collectively seen significant market capitalization growth, with Nvidia’s share price soaring by 225% in the past 12 months. Despite this, UK-focused equity funds continue to face net redemptions, marking the 32nd consecutive month of outflows. The trend reflects a broader shift among investors favoring equities over safe-haven assets, with UK and Asia-Pacific markets witnessing continued challenges amid global economic dynamics.

Today’s budget proposal introduces a ‘British’ or ‘UK’ ISA aiming to encourage investment in UK-listed companies, garnering a mixed response from experts. Currently, ISAs allow individuals to shelter up to £20,000 annually from tax on interest or returns, spanning from cash accounts to stocks and shares.

The new plan proposes a £5,000 allowance each tax year for investments in domestic firms, aiming to support UK investment and growth. However, concerns arise regarding the potential performance impact on retail investors due to the London stock market’s recent lackluster performance compared to global indices. Experts caution that the proposed British ISA might not significantly alter investment behavior and could add unwelcome complexity for most investors. While some see it as a win for City stakeholders, doubts linger about its efficacy in driving increased flows into UK equities, especially amid existing challenges in the market landscape.

Further clarification is sought on how the ISA encourages genuine growth and innovation while excluding globally focused entities like the FTSE 100.