Chancellor Rachel Reeves is set to scrap plans to introduce a British ISA, according to widespread reports first circulated in the Financial Times.

The British ISA was proposed by the previous Conservative Government and would have handed savers an additional £5,000 of tax-free investing allowance, on top of their usual £20,000 annual ISA allowance.

The British ISA would have provided an extra ISA allowance in return for investing in British companies.

Financial Planners and savings providers have welcomed the likely abandonment of a new ISA, with many suggesting it would have over-complicated the ISA sector.

Shaun Moore, tax and Financial Planning expert at Quilter, welcomed the step but said ISAs still needed reform.

He said: “The British ISA was rife with issues and the proposals ran 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 would be naturally limited.

“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 to the UK as a whole without the need for the creation of an extra allowance. The more people we get investing, both in the UK and more generally, the more the economy will naturally come to benefit.”

Dan Olley, CEO of Hargreaves Lansdown, agreed and added that simplicity was key when it came to encouraging people to start investing.

However, he said more needs to be done to give people confidence to invest, with the firm’s April 2024 Savings and Resilience Barometer report showing that there are over 12 million households who have, “excess cash that could be invested to improve their long-term resilience, but aren’t doing it”.

James Carter, head of platform product policy at Fidelity, agreed that scrapping the British ISA was the right move and more simplicity was needed as, “complexity destroys confidence”.

Michael Summersgill, CEO of investment platform AJ Bell, said the UK ISA was a “political gimmick that was doomed to fail in its objective of boosting investment in UK Plc” and said he hoped the new Chancellor will take a long-term approach to ISA reform.

He called on the Government to consider merging Cash and Stocks and Shares ISA to encourage longer-term saving.

He said: “HMRC data suggests there are around 3 million people in the UK with £20,000 or more invested in Cash ISAs and no money invested in Stocks and Shares ISAs. If just half of that money was invested for the long term, an additional £30 billion of investment would be unlocked. That is a conservative estimate and the actual figure may be far higher, given that HMRC’s data indicates many of those individuals hold a Cash ISA balance far in excess of £20,000.

“Given around half of ISA assets on AJ Bell’s platform are invested in UK companies or UK-focused funds, UK-based firms should disproportionately benefit as a result. From this basis, further reforms aimed at encouraging money to flow to UK business can be considered when economic circumstances allow.”