Plans for a UK ISA to encourage investment in London-listed shares have been ‘ruled out by the government’ in an apparent U-turn

The Government has reportedly scrapped plans for a UK ISA, despite insisting it would not do so just months ago.

Investors would receive £5,000, on top of their existing £20,000 tax-free allowance, to invest in London-listed shares and boost UK businesses.

But the government is now said to be planning to cancel the account altogether, fearing it could “complicate” the market.

The plans were drawn up by the previous Conservative government during the spring budget earlier this year.

The Labour Party said during the election campaign that it had no plans to scrap the UK ISA, but a government source told the Financial Times yesterday: “We have no intention of making the ISA picture any more complicated.”

Investor leaders had warned the plans would confuse the already complex ISA system and could discourage investors from using tax wrappers.

Shaun Moore, tax and financial planning expert at Quilter, said: ‘Labour’s reported scrapping of plans for a UK ISA is a sensible move… Had the UK ISA seen the light of day, it would have muddied the waters even further.

‘The UK ISA was riddled with problems and the proposals risked confusing consumers or having poor outcomes. For example, the limitation on the ability to transfer from one UK ISA to another ISA may not have been fully understood at the time of opening. In addition, the investment universe of a UK ISA would naturally be limited.’

Meanwhile, Michael Summersgill, chief executive of investment platform AJ Bell, said: “The UK ISA was a political stunt. The new government is expected to take a more sensible approach to ISA reform, focusing on simplification for the benefit of consumers.”

Before the general election, the Labour Party promised it had no plans to leave the British ISA.

Many City officials, however, argue that more needs to be done to boost investment in UK companies.

Summersgill said changing the allowance to £25,000 would boost investment. Currently, savers can only invest up to £20,000 a year into ISA accounts.

Dan Moczulski, CEO of Etoro in the UK, said: “I think there is a unanimous consensus that more needs to be done to stimulate investment in the UK, revitalise our capital markets and get more people investing as well as saving. The UK is a leader in financial services, but when it comes to the number of households investing in capital markets, we are far behind the US.”

A Treasury spokesman said: “No decision has been taken. The Government will provide further information in due course.”