AJ Bell has called on the Government to “go back to the drawing board” on ISA reform and deliver a long-term review of the market.

The investment platform said a review should be aimed at supporting retail investor engagement in the UK’s flagship savings and investment product.

Speculation has mounted in recent week that Chancellor Rachel Reeves will use her Budget to announce a cut to the current £20,000 ISA allowance.

AJ Bell has today released new findings from behavioural trials studying the impact of combining the ISA system into a joint cash and investments account. The research, conducted by doctors, Richard Whittle and Stuart Mills, and supported by AJ Bell, used data from a survey with 2,400 participants to examine the impact of combining two components – cash and investments – into a single ISA account.

It found that a combined ISA pot could make it easier for people to start investing and increase the likelihood they continue to invest once they begin, in comparison to the current ISA landscape.

“Government is right to try and get more people investing but will miss the opportunity to transform the market unless it ditches some of the ill-conceived ideas currently on the table and takes a more transparent, long-term approach to reform,” said AJ Bell CEO, Michael Summersgill.

“Rather than developing policy in a Whitehall bubble, with scant evidence or real-world knowledge to underpin the debate, it should instead go back to the drawing board.

“A Government green paper or independent commission on ISAs, similar to that setup on pensions, would help build evidenced-based consensus on the case for reform and encourage a multi-pronged approach to supporting retail investors, which includes measures like targeted support.”

Whittle added: “The design of the UK ISA system presents cash as safe ‘savings’ and stocks and shares as riskier ‘investments’, forcing people into an immediate binary decision where the safety of cash usually wins out. Smarter ISA design can help to overcome this helping people achieve good financial outcomes.”

AJ Bell has long argued for reform of the ISA system, which would focus on simplification and make it easier for people to save and invest.

The company has stated that measures reportedly under consideration by the Chancellor, such as a cash ISA allowance reduction or compelling investors to hold UK assets, will do little to support UK markets and may discourage savers from switching to investments.

Summersgill added that any process to review the current ISA system should “place consumers at the heart of the discussion”.

“These behavioural trials show an integrated cash and investing ISA system could remove friction, reduce inertia and help consumers navigate what today looks like a binary choice between cash or investments,” he said.

Mills added: “We know that UK savers are receptive to the higher returns offered through share-based investments. It is critical that financial institutions design their products to support customers in achieving their financial objectives, and that these institutions are supported by government policy to do so.”

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