Government plans to have "negative impact" on ISAs

Plans to reduce the annual ISA allowance and the abolition of dividend tax credit look set reduce the amount invested in the savings vehicle.

11:51 09 June 2004

Government plans to reduce the annual allowance of ISAs and the recent abolition of dividend tax credit are likely to reduce the amount invested in the savings vehicle, according to a new survey.

The poll, undertaken by NMG Research on behalf of ISIS Asset Management, found that 30 per cent of investors feel "less inclined" to invest in ISAs after the government revealed its intention to reduce the annual allowance from 7,000 to 5,000 next year.

The study also revealed that levels of disillusionment were highest amongst investors aged 45-54 and those aged 55-59, traditionally the core buyers of ISAs and other savings products.

"These findings are sadly no surprise to us, since key players in the investment industry have repeatedly warned the government about the negative impact on sentiment that such measures would generate," said Jason Hollands, head of communications and strategy at ISIS Asset Management.

"A significant proportion of investors appear to have concluded that since the Government is no longer committed to ISAs why should they bother?

"When Labour replaced Personal Equity Plans with Individual Savings Accounts, these were heralded as a flagship part of government policy to encourage private savings, but the flagship increasingly looks like it is being torpedoed by its own side."

ISIS believes the government should either reaffirm its support for ISAs by dropping plans to reduce the allowance or launch a formal consultation with the investment industry and other parties to discuss ways in which the tax system can be used to encourage private savings and investments.

"What cannot happen is the perpetuation of this limbo," Mr Hollands concluded.