By - As the Budget approaches, one key issue the government is expected to focus on is investing in British business. Alongside the sale of the government’s stake in NatWest, this could mean positive ISA changes, but it raises the risk of introducing needless complexity.
- Supporting first-time buyers is also expected to take centre stage during the Budget. LISAs are a vital part of the solution.
- We’re also watching for ISA changes to support savings for retirement, particularly for the self-employed.
The Public Sector Finance Bulletin was released this morning: Public sector finances bulletin – GOV.UK (www.gov.uk)
Susannah Streeter, head of money and markets, Hargreaves Lansdown:
“January’s public finance figures were mixed news for Jeremy Hunt, who had a boost to his coffers, but not one that’s big enough for a Budget bonanza. January tends to be a positive month for tax receipts, so a surplus was always on the cards. In the end, the month delivered £16.7 billion – the biggest January figure since records began 31 years ago – but behind the OBR forecast of £18.2 billion.
It offers a few inches of headroom for Hunt, but not enough for a Budget of dramatic tax cuts. However, he does have the opportunity to wiggle into some moves for particular groups, and make changes to ISAs that help support specific groups. .
ISAs are part of the furniture – in a good way. They’ve been around for 25 years and are well-established and well loved. Of course, like anything we’ve been wedded to for 25 years, we can always think of ways they could improve. But while small changes would be welcome, the government needs to beware of major reforms that would end up over-complicating things.
Key themes
Investment in British companies
The economy is clearly in need of an injection of investment to help drag economic growth out of a stupor, and investing in Britain could be a central plank of the Budget announcement. The NatWest share sale provides an opportunity for Jeremy Hunt to put British businesses front and centre in the public consciousness.
Some tweaks to existing rules and planned changes could go a long way to supporting this aim. Halting planned cuts to dividend tax and capital gains tax allowances could help support investors to make the most of their commitment to British firms. Likewise, cutting stamp duty on share purchases would ease the burden on investors.
Increasing the ISA allowance would automatically increase investment in the UK, because there is a major home bias among ISA investors. Currently around 1 million of HL’s 1.8 million clients trade on London markets, accounting for 80% of trades in the last year, with around 70% of investors holding at least part of their position in a company for more than 12 months.
However, mooted plans for a British ISA are more worrying. They could add unnecessary complexity, could fail to achieve their aims, and could have a negative impact on UK investors. A separate British ISA might end up providing no additional boost to UK investment. Those who already max out their £20,000 ISA allowance could simply hive off all their existing UK holdings to the British ISA, and use the extra wiggle room to invest more overseas in their usual ISA.
If it does persuade people to invest more in the UK, it could end up increasing risk for investors. It could unnecessarily concentrate portfolios, which could be a detriment, especially if there was more volatility in the London markets compared to others.”
First time buyers
Sarah Coles, head of personal finance, Hargreaves Lansdown:
“Ailing first-time-buyers are hoping for a shot in the arm from the Budget. In the days of early Budget speculation, the idea of changes to stamp duty on property was floated. This could help quash a major extra expense for those getting onto the housing ladder, but given we’re already in the midst of a stamp duty holiday, it would need to be a fairly radical and expensive change to make a real difference.
In the interim there had been a host of colourful ideas floated from all quarters from extending the government-backed mortgage guarantee scheme, to more radical notions including allowing people to dip into pensions for deposits, launching housing deposit loans similar to student loans, and government-backed guarantees for housing deposits.
One really straightforward option is to focus on one of the most useful tools available for first-time buyers right now: the Lifetime ISA. A couple of tweaks would make this even more effective. Cutting the penalty from 25% to 20% would ensure that people who are forced to dip into funds in an emergency aren’t punished with the loss of some of their own money. And linking the limit on the maximum house price you can buy through the scheme to overall house prices would ensure first-time-buyers aren’t priced out by limits on the scheme. This would encourage more people to cash in on the benefits of a LISA and accelerate their path to property ownership.”
Supporting saving for retirement
Helen Morrissey, Head of retirement analysis, Hargreaves Lansdown:
“Given the need to support retirement investing for self-employed people, we want to see the government open up LISAs to people aged up to 55 – to both open them and pay into them. This would make them available to a whole new tranche of people who are chronically low on savings for retirement. Added to the removal of the penalty for early emergency withdrawals, this would tailor them to the needs of the self-employed, and help boost retirement savings for a group who are alarmingly under-pensioned.
Given the timing of this Budget, there’s also the chance that any potential changes emerge as topics for consultation rather than major reforms overnight. There’s then the issue of what the political landscape looks like when we emerge from any consultation period.”
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