The Week: The missing opportunity in the Autumn statement

The British ISA has been mooted as a potential tool to revive the UK equity markets. It may not be enough by itself

  • The third quarter of 2023 saw just five listings on the UK main market and AIM
  • There has been a 15-20% shrinkage in the number of companies listed in the UK 
  • A British ISA would need to be focused on small and mid cap companies 

The idea of a British ISA was widely mooted ahead of the Autumn statement, yet didn’t make the final cut. There was tinkering round the edges - expanding the Innovative Finance ISA to Long-Term Asset Funds (LTAFs) and open-ended property funds, piecemeal changes to the subscription and transfer rules – but nothing that marked a radical change to the increasingly complex ISA system. 

ISAs have been a popular, trusted savings vehicle, but layers of complexity have been introduced in recent years. AJ Bell research found only half the people questioned could correctly identify the main types of investment ISA and less than a third know the annual ISA allowance. This suggests they aren’t working as well as they should from the investor side. 

Neither are they working to address the problem of the UK’s flagging capital markets. As companies increasingly look to list abroad and fund raising slides, ISA changes – particularly those designed to incentivise small and mid cap companies – could have been a way to encourage UK domestic investors back to their home market. The Chancellor bottled it. 

The problems in the UK market are well-known. The IPO is lacklustre everywhere, but the third quarter of 2023 saw just five listings on the UK main market and AIM, capping a long run of weakness. High profile companies such as ARM Holdings have chosen to list in the US, in the hope of commanding a better price, while a recent survey by Quoted Companies Alliance (QCA) found that one in four UK small and mid cap businesses now see no benefit in being publicly quoted. There has been a 15-20% shrinkage in the number of companies listed in the UK. 

Targeted ISA investment could have created a new source of demand at a time when many of the traditional sources of demand – pension funds, charities, wealth managers – have dried up. Around £68.5bn went into Isas in the tax year to 2022, of which around a third went into stocks and shares. While it cannot replace the demand from UK institutional investors, it could have created some much-needed momentum around the UK market. 

The Autumn statement did not announce any of the IHT reforms heavily trailed in advance, which may prove to be a reprieve for the AIM market, which draws a lot of its funding from IHT tax planning portfolios. However, the problems around cost disclosure for investment trusts, which are a threat to funding for areas such as infrastructure, also remain unresolved. 

The government needs to do better if it is going to channel investment into UK businesses. Perhaps it will be a matter for the Spring Budget – if it gets that far.