Rachel Reeves bins ISA policy with two-word dismissal in Labour Budget

Chancellor Rachel Reeves has opted to scrap plans for an additional UK allowance.

The idea was put forward by the previous Conservative Government, in a bid to open up more investment in UK firms, providing an extra allowance of £5,000 in addition to the current £20,000 ISA allowance.

But the Government has stated in a policy document for the Autumn Budget that it will not be proceeding with the scheme citing "mixed responses" to the consultation on the project.

Rachael Griffin, tax and financial planning expert at Quilter, agreed with the move, saying another ISA allowance would have made the system even more complex.

She added: "The British ISA, as proposed, was flawed from the outset. It threatened to restrict investors by limiting the scope of eligible investments to UK assets and potentially curtailing their ability to transfer funds to other ISAs.

"Such limitations would have worked against the goal of long-term wealth building, ultimately reducing investor flexibility and choice."

Tom Selby, director of public policy at AJ Bell, said the British ISA was just a "political gimmick", and set out how the ISA system could be simplified.

He suggested: "Merging Cash and Stocks and Shares ISAs is the obvious starting point, a reform that would make life easier for investors and would-be investors and could provide a significant boost to UK capital markets at the same time.

"Over the longer term, the Government should consider whether the best features of the current ISA regime can be combined into a single ISA product."

Ms Griffin said the real challenge with ISAs is that too much of savers' cash is currently in low-paying cash ISAs which don't benefit consumers or the economy.

She explained: "Encouraging more individuals to invest their savings for the long term-rather than sitting in cash-would bring far greater advantages to the UK as a whole."

The Budget also confirmed the ISA annual allowance will remain at £20,000, at £4,000 for Lifetime ISAs and at £9,000 for Junior ISAs and Child Trust Funds, until April 2030.

Brian Byrnes, head of Personal Finance at Lifetime ISA provider Moneybox, voiced his disappointment that there were no reforms to Lifetime ISAs.

He said: "We passionately believe that futureproofing the Lifetime ISA by index linking the property price cap and reviewing the unauthorised withdrawal penalty fee will provide some much-needed support and reassurance to first-time buyers of the length and breadth of the country."

At present, when using funds from a Lifetime ISA to buy a first property, it has to be valued £450,000.

This is resulting in first-time buyers in expensive areas like London as it was intended.