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Wednesday, 21 March 2012

Government Responds To Breedon

The Government has penned a rapidfire response welcoming the Breedon Taskforce report. Broadly, there is support to explore most of the avenues recommended, except the extension to the ISA programme.

While there's no appetite to make formal changes to the tax and regulatory framework necessary to boost alternatives to banks, the good news is that the Government has acknowledged the industry's desire for proportionate regulation, and welcomed the self-regulatory initiative in setting up the Peer-to-Peer Finance Association to "help raise awareness among SMEs and investors and establish industry standards to protect investors and borrowers". The Government has also :
"...allocated £100m of the Business Finance Partnership to invest through non-traditional channels that can reach smaller businesses, which could include peer-to-peer lending as well as mezzanine loans and asset-based finance. The Government will request proposals for investment in May."
However, the Government "is not minded to amend the ISA scheme" by adding new asset classes. Ironically, the rationale for resisting the Breedon recommendation on this front provides the very basis on which it should be accepted. The ISA scheme is too popular and too narrow to be called "safe" and does not efficiently allocate spare cash to people and businesses who need it
"ISAs are a successful and popular product - around 45% of the adult population currently holds one – and their relative simplicity and the coherence of the brand are important to that success. ISAs already offer generous reliefs allowing people to invest up to £10,680 each year in a “stocks and shares” ISA without incurring tax on their returns. The range of qualifying investments includes securities issued by companies listed on a Recognised Stock Exchange: this may include companies of a range of sizes. There is also scope for UCITS, NURS and other investment funds that qualify for inclusion in an ISA to invest part of their funds in smaller, unlisted companies. The Government considers that this provides the right balance of risk given the nature of an ISA investment. The proposed changes would complicate the scheme and undermine its core purpose of providing a relatively simple, safe vehicle which encourages people to save."
Small investors' life savings should be placed in many more baskets than this.