British ISA 'risks more harm than good' despite £5k tax-free savings boost for Britons

Experts are sounding the alarm that a British ISA could flout existing Consumer Duty rules which are set in place by the Financial Conduct Authority (FCA).

In July 2023, the country's financial services regulator introduced these rules which place responsibility on firms to deliver fair value and good customer outcomes.

These apply to the provision of products such as savings accounts, current accounts, mortgages, insurance and investment.

Banks, building societies, advisers and investment firms must communicate to customers how each product works and update them to any changes.

Do you have a money story you’d like to share? Get in touch by emailing money@gbnews.uk.

Tom Selby, the director of public policy at AJ Bell, has suggested that current British ISA proposals “risk causing more harm than good and damaging the successful ISA brand" despite Labour and the Tories supporting its creation.

He explained: “Our research shows that when presented with the choice of a British ISA or a Stocks and Shares ISA, almost a third of potential investors would opt for the British ISA for their first subscription – despite the fact they could access identical investments and more besides for the same price in a Stocks and Shares ISA.

“This would be a poor consumer outcome and means firms would almost certainly need to wrap any British ISA in risk warnings to comply with the FCA’s Consumer Duty rules.

“As investors tend to naturally favour UK investments anyway, it would be much simpler to increase the overall ISA allowance to £25,000, a move which would likely achieve similar results to a British ISA but without the extra complexity.”

What is the British ISA?

Under this new ISA, British savers would get an extra £5,000 tax-free allowance on top of their existing £20,000 across every type of the savings product.

This is part of the Government's wider plan to encourage people to invest in UK assets and create a bigger investing culture in the UK.

Furthermore, Hunt hopes the British ISA will increase capital available to businesses and drive more interest in the UK stock market among taxpayers.

As part of the Government's initial proposal, investments in the new product will be restricted to British-based stocks and shares and trusts that have at least 75 per cent of their assets in UK companies or bonds of UK-listed companies and gilts.

The Chancellor has claimed the British ISA had been lobbied by “200 representatives from the City and our high growth sector” and would “encourage more people to invest in UK assets”.

He also said the new product would “ensure British savers can benefit from the growth of the most promising UK businesses, as well as supporting those businesses with the capital to expand".

In March, the Government indicated that it would be in a better position clarify a launch date for the British ISA once the consultation was over.

Last month, Labour confirmed it would back the initiative which would see British savers potentially in receipt of a £5,000 tax-free boost.

A spokesperson for the party, which is expected to win the upcoming General Election, told City AM: "Labour has no plans to drop the British ISA.

"Labour wants to make it as easy as possible for people to feel the benefits of saving and investing their money, including through increased utilisation of stocks and shares ISAs.”