Budget 2024: Introducing the British ISA

The Chancellor today announced the introduction of the widely rumoured “British ISA” in the budget, representing and additional £5,000 allowance available to be invested in the UK stock market, which alongside reforms to pension legislation is an attempt to promote investment in the UK market has been starved of international capital in recent years.

This, in-turn, has produced disappointing returns, which in turn drives away more capital as fund managers are forced to focused on short-term “returns” regardless of fundamentals. Reversing this trend is seen as important to increase the attractiveness of UK capital markets and, in-turn provide a virtuous positive circle of improved returns attracting more capital.

This policy can also be justified as, historically, UK equities appear to represent very good value on current and expected profits (and other metrics) and, assuming any kind of return to average would actually represent a good long-term entry point (and we have been informed significant international investors also believe this).

With regard to the mechanics of the “British ISA” there are immediately a number of questions that we will need to see addressed to understand its efficacy in really helping spur effective investment in UK plc and issues around administration.

• For instance many UK focused funds are allowed, under Investment Association rules, to invest a proportion of assets outside of the UK, while still being a “UK Equity” fund and allowing funds with such a broad mandate within the new allowance would seem sub-optimal. Addressing this would however limit the vehicles available to investors, probably focusing them towards mid-to-small cap funds.
• Another point to address is the fact that many of the UKs larger listed companies derive much of their profit from overseas operations, and while this makes them look excellent value against overseas peers (due to the low valuations that afflict the UK market) these are hardly the companies that provide the best growth opportunities, or that are starved of capital.
• Hence we would suggest that a nuanced approach to which funds/equities are eligible, although this will inevitably add a layer of managing/reporting complexity that we are already pondering.

Until we see more on the proposal it is difficult to comment either on the “British ISA” efficacy in achieving its goals, or its attraction to mainstream investors, although we applaud the concept of supporting UK plc which genuinely is suffering a capital shortfall relative to other markets and does appear to represent good fundamental value compared to many peers.

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