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There's only one way to reform the ISA regime

Rachel Reeves is out there looking for growth. And rumours have it that she's been looking at either abolishing the cash ISA, or reducing it in size.
For those who are not familiar with ISAs, they are accounts for UK resident where you can save up to £20,000 a year, and not pay any tax on the interests - ever. There are multiple types of ISA, but mostly it boils down to: cash ISAs, and stocks and shares ISAs.
A cash ISA is essentially like a deposit account that is tax free. Every year you can add £20k to it, and never pay tax on it. Stocks and shares ISAs allow you to invest your money in the stock market and not pay tax on capital gains. Pretty neat, especially considering the tax burden in the UK is at the highest level in decades.

Now, back to Rachel Reeves and her mission to grow the UK economy. Many investment firms have complained to Reeves that too many people stash their money in cash ISAs, depriving the markets of some £290 billion of potential investment (data from FY22/23). Investment firms have, of course, only the best interest for British people at heart, and couldn't possibly be pushing for more money to be invested because that's literally how they make money.

There are two problems. The first one I would say is moral. Many people saving into a cash ISA are really just trying to protect the little money they have from inflation and taxation. Take a look at cash ISA interest rates over the past decade: you're lucky if you beat inflation most years. The idea that the government should come and take another bit of your money with tax is frankly absurd.

The second problem is that Rachel Reeves is looking for growth, but forcing people out of cash ISAs by either abolishing them or reducing their size won't necessarily spur growth in the UK. For starters, people may not want to invest, and will just keep their money in a taxed savings account. Sure, some people will be prompted to start investing - but will they invest in the London Stock Exchange? Probably not. And why would they? Investing in the LSE is being deterred by the stamp duty tax (SDT). The UK has one of the highest taxes of such kind at 0.5%, whereas many countries (like the US) have none.
So abolishing the cash ISA would probably benefit the US economy more than the UK's, since people would be more likely to invest their money there rather than here.

There is plenty of evidence on the overall damage of the SDT to the LSE, and if we are serious about protecting it, SDT must be abolished. It wouldn't just attract more investments from people forced to leave the cash ISA, but from everyone - including the pension funds Reeves is so keen on pushing to invest in the UK. Plus it could make the LSE more attractive for companies looking to IPO. All this would come at very little costs for the government, because SDT doesn't even raise much money anymore. Ever since it was introduced, pension funds as well as individuals have moved their investments away from the UK, meaning not only that LSE-listed companies have been deprived of cash, but the state isn't raising much money with this tax either.

The nanny state should stop telling individuals what to do with their money and pushing pension funds to invest in the overtaxed UK market: if Rachel Reeves is serious about growth, she must do what is right, rather than what is popular, and abolish stamp duty on shares.
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