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Budget 2024: A UK ISA and British Savings Bond from NS&I

Budget 2024: A UK ISA and British Savings Bond from NS&I
Paloma Kubiak
Written By:
Paloma Kubiak

A British ISA to encourage more people to invest in UK assets is set to be introduced, along with a British Savings Bond from National Savings and Investments (NS&I) to get people to save for the long term.

In a bid to encourage more people to invest in UK assets, the British ISA will give people an additional £5,000 annual allowance (on top of the current £20,000 ISA allowance) for investment in UK equities.

During the delivery of the Spring Budget, Chancellor Jeremy Hunt said: “This will be on top of the existing ISA allowances and ensure that British savers can benefit from the growth of the most promising UK businesses as well as supporting them with the capital to help them expand.”

In accompanying Budget documents on the UK ISA policy objectives, it stated: “The main objective for the UK ISA is to support a culture of investment in the UK and to give people the opportunity to invest and benefit from the UK’s vibrant capital markets and high-growth companies.”

In terms of defining “UK companies”, it said it could include ordinary shares in companies that are incorporated in the UK and are either listed on a UK recognised stock exchange or admitted to trading on a UK recognised stock exchange.

The UK-recognised stock exchanges are Aquis Stock Exchange, Cboe Europe Limited, and the London Stock Exchange, including the Alternative Investment Market (AIM).

The UK ISA consultation, which runs until 6 June 2024, stated: “This approach would enable the UK ISA to support a range of UK companies, from small companies trading on AIM, to medium or large UK companies that are listed on the London Stock Exchange.

“It could also support UK companies across a range of sectors such as construction, healthcare and technology. This approach also means that it would be easy for investors and ISA managers to identify eligible companies.”

Further, the Government proposed that collective investment vehicles, corporate bonds, and gilts could be included in the UK ISA. The consultation also seeks views on transfers and cash holding rules.

‘Devil in the detail’

Richard Wilson, CEO at Interactive Investor, said: “The additional tax-free allowance of £5,000 per year to invest in UK shares is a positive for investors. As ever, however, the devil will be in the detail, and we will have to see how a new ‘UK ISA’ will work in practice. The key will be keeping it straightforward for investors – we do not need additional complexity to what is an already crowded and complex ISA environment.”

John Asthana Gibson, Social Market Foundation researcher, said: “Whilst the Chancellor’s aim to channel more investment into UK equities should be applauded, the introduction of a UK ISA is the wrong way to do it. Extending the ISA allowance will largely help older and wealthier people – 29% of ISA savings are held by the richest 10% of working-age adults, 74% by those in the top half.

“At the same time, the measure will cost the Treasury considerable sums in forgone revenue. Government support for savers should instead be targeted towards younger people on low incomes, many of whom have little or no financial savings to fall back on.”

British Savings Bond

The British Savings Bonds will be delivered through NS&I and will be launched in April 2024 yet available for an extended period of time.

Its aim is to make it easier for people to save for the long term, offering savers a guaranteed rate, fixed for three years on investments between £500 and £1m.

British Savings Bonds will be the new issues of NS&I’s three-year Guaranteed Growth Bonds and Guaranteed Income Bonds, which were last on sale in 2019.

Interest rates will be announced in due course, with NS&I explaining that they are “intended to be priced mid-market in relation to similar products, in line with NS&I’s requirement to balance the interests of savers, taxpayers and the broader financial services sector.”

As with all savings from NS&I, money invested will be 100% secure, backed by HM Treasury, and invested back into supporting the UK.

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “NS&I is a trusted brand and those savers who want their money safe and perhaps want to support UK businesses could well find these popular. However, the interest rate offered will need to be carefully thought out by NS&I, considering the current state of the savings market, or it could risk being overlooked.

“As we have seen in the past, NS&I products are popular, but savers will look elsewhere if a much higher rate can be obtained. The Chancellor said the fixed bond will have a three-year term, which may be too much commitment for some savers. Our Moneyfacts Best Buys show many short-term bonds pay more than 5%, but three-year bonds pay much less.”