The Labour Party has an opportunity to “drastically improve” the plans for a British ISA should it be in power following the General Election, according to Quilter.

The wealth management firm said the current plans run the risk of “consumer confusion”.

Shadow Chancellor, Rachel Reeves, indicated in a speech this morning that Labour intends to proceed with the plans to introduce a British ISA to the market.

Proposals to introduce a British ISA were announced by the Chancellor, Jeremy Hunt, during his March budget to increase investment in the stock market with a £5,000 tax-free allowance for investment in UK listed companies.

Currently, there is a consultation on the plans which will close on 6 June, but no firm date has been marked to launch the British ISA.

“While Labour has confirmed it plans to go ahead with a British ISA, should it come to power it has an opportunity to drastically improve it,” tax and financial planning expert at Quilter, Rachael Griffin, said.

“The ISA is a simple idea, a tax efficient place to grow your wealth, however, with various additions over the years it has now become a confusing area of personal finance. Should it win the election, Labour must use those principles of simplicity when designing the British ISA.

“Current proposals run the risk of consumer confusion or poor outcomes – for example limiting the ability to transfer out of a British ISA to a different ISA may not be fully understood at the time of opening.

“Furthermore, the investment universe of a British ISA will be naturally limited, but more can be done to appeal to a wider set of investors, such as including cash and fixed income investments or lowering the minimum UK equity requirement. The closer the British ISA is aligned to the current stocks and shares ISA when it comes to investment vehicles permitted, the better.”

Griffin also said there is an opportunity to consider other incentives to get people behind the product. She suggested that the incoming Government could consider bringing in other tax reliefs, for example having an inheritance tax exemption, to supplement the income tax, dividend tax and capital gains tax exemptions ISAs already receive.

“Ultimately, so few people use their total ISA allowance, that an additional £5,000 to invest in UK companies is unlikely to scratch the surface and will do very little to alleviate the pains the London stock market is going through just now,” Griffin added.

“The reality is, the UK has a cash savings problem and too much money is sat in low yielding cash ISAs, doing very little to help them or the economy. Finding ways to get that money invested for the long-term would be far more beneficial.

“There are many possibilities to consider, but it is important simplicity and attractiveness of the idea are put first. The British ISA’s success hinges on its ability to serve the needs of a diverse investor base.”

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