Members of the investment company industry have backed calls for a UK-focused individual savings account (ISA), but stressed it needs to sit alongside cost disclosure reform.

A sharp drop in the number of companies listed in the UK along with declining capital market activity and liquidity has led to renewed calls for a British ISA, or ‘Brisa’, which would give taxpayers a £20,000 allowance to invest in only UK companies. Investors would still be able to put money into overseas businesses, but they would not recieve the tax break.

Over 80 senior industry figures signed a letter to the The Times last week urging chancellor Jeremy Hunt to make the reform in his Budget on Wednesday.  Jonathan Symonds and Julia Hoggett also wrote a letter to Hunt on behalf of the Capital Markets Industry Taskforce saying the proposal merits ‘careful consideration’. 

While the investment company industry has been supportive of the proposals it is unclear how the structure would be treated under a Brisa and some parties have warned the ISA reform needs to go hand-in-hand with cost disclosure reform.

Investment companies form 37% of the FTSE 250 index, however given they can invest globally it is uncertain if they would qualify for the a potential British ISA allowance. Even if the sector as a whole does not qualify a significant proportion of trusts could benefit as they invest in UK equities and infrastructure.

However, investment companies might be deemed too expensive by new potential investors since they are required to disclose aggregated fees, which make them appear more expensive than their open-ended peers.

One analyst told Citywire the Brisa scheme would be ‘a massive own goal’ for investment trusts if this ISA reform was implemented without any changes to cost disclosure. 

Baroness Altmann, who signed The Times letter, and has a bill to remove investment companies from the Alternative Investment Fund Managers Directive (AIFMD) regulation, which is being heard on 22 November, believes the two issues go hand-in-hand.

‘Launching a British ISA would be a strong signal to investors both here and abroad that UK financial markets are again open for business and our companies are attractive,’ Altmann (pictured below) told Citywire. 

She added a new Brisa ‘could help reverse some of the current, often unwarranted, deterrence’ the cost disclosure issue has created for the trust sector which is ‘driving investors to overseas markets or companies’. 

Other members of the trust industry also signed the letter in The Times including Harwood Capital founder Chris Mills, who manages the North Atlantic Smaller Companies Trust (NAS ), Richard Staveley, who runs the UK small-cap investor Rockwood Strategic (RKW ) and John Ions, chief executive of Liontrust Asset Management (LIO).

Against a Brisa

However, the Brisa scheme has not been without criticism.

Quilter’s tax and financial planning expert Rachael Griffin said restricting ISA holders’ choice of investment risked reducing returns and added that as the UK stock market is not particularly UK focused, it was questionable how much it would actually boost its public equity markets.

Meanwhile, Ben Russon, co-head of UK Equities at Martin Currie said he is supportive of providing tax incentives to encourage investments into domestic equities, however, these should be structured as incentives rather than compulsions by providing an additional British ISA allowance on top of what is already available.