Jeremy Hunt is reportedly backing plans for large-scale Isa reforms designed to encourage individual savers to invest in the UK stock market.
One option being discussed by the Chancellor is an additional tax-free allowance for investing in UK companies, the Financial Times reported. Treasury officials have also met investment industry bosses to discuss options which include merging stocks and shares Individual Savings Accounts (Isas) with cash Isas.
Proposed changes to Isas come as the Government and the financial industry both ponder ways of increasing investment into London-listed companies amid a backdrop of British businesses shunning the UK in favour of America.
Last month, The Telegraph revealed how Treasury ministers were plotting a shake-up of Isas, with plans to make a stocks and shares Isa the default option for Britons wanting to use the tax-efficient savings products.
Such a move would see financial institutions steering savers away from cash Isas, something the Government hopes will meet its goal of encouraging investment in London-listed public companies.
Getting more individual savers to put their funds into stocks and shares Isas will result in a new surge of capital into the London Stock Exchange, ministers believe.
More available investment funding would encourage companies such as valuable hi-tech startups to float in London rather than moving overseas.
A Treasury spokesman said: “HMT is receptive to ideas of how we can make Isas more attractive to encourage people to develop a savings habit and to invest in a way that works for them.”
It is understood that no firm moves to unveil Isa reforms will be made ahead of the Chancellor’s Autumn Statement.
Research from economics consultancy Oxera found that more than 70pc of consumers who have more than £5,000 in savings do not consider stocks and shares Isas because they fear losing their money.
Earlier this week Nationwide announced an 8pc regular savings account, while a fortnight ago Santander had to close a 5.2pc savings deal after just one week thanks to huge public interest.
Isas allow savers to put away up to £20,000 a year without paying tax on interest or financial returns. Isa savers can choose to invest in funds and stocks, or receive a simple rate of return from an provider.
Experts have criticised the current Isa regime, with the Resolution Foundation claiming it gives “unnecessary tax breaks” to “the rich”.
“Spending over £2bn on those with Isa savings of over £100,000, while 750,000 families have no savings at all, is not what a good use of Treasury resources looks like,” said Molly Broome, an economist from the think-tank, said in a January report.
Over the last year, concerns have been raised about the low number of post-pandemic stock market flotations in London.
The number of floats – initial public offerings of shares – declined by a third during the first half of this year as cash-hungry startups opted for the US.