The UK stock market now faces a reckoning. For years, the London Stock Exchange has witnessed an exodus of high profile listings, shrinking valuations and dwindling enthusiasm from retail and institutional investors alike.

A key reason behind this problem is how the country encourages — or, more accurately, fails to encourage — investment through its tax system. ISAs (Individual Savings Accounts), once heralded as a bold step toward mass participation in wealth creation, have gradually become a symbol of caution and underperformance.

If we want to revitalise the market, rebuild domestic capital flows and restore public trust in equities, we may need to reform the ISA system. Here’s some ideas:

End the Cash ISA Illusion

Cash ISAs have — alongside Premium Bonds — become the perceived cornerstone of UK savings culture, but not for the right reasons. Although Cash ISAs offer tax-free interest,* they also promise a level of security that fails to account for inflation.

IG analysis has shown that over the past 26 years, cash ISA savers have earned just one-seventh of the real returns of investors in UK equities. Despite this poor performance, cash ISAs are growing in popularity, with over 700,000 more accounts opened in 2022–2023, while stocks and shares ISAs declined by 126,000 in the same period.

The current system may be deeply flawed. ISA tax relief costs the government nearly £10 billion a year, yet it subsidises behaviour that does almost nothing to help individuals build meaningful long-term wealth. Worse, most people using cash ISAs don’t even benefit from the tax break. Basic rate taxpayers, who make up the vast majority of cash ISA users, are already allowed to earn up to £1,000 a year in interest without paying any tax.*

At today’s interest rates, they’d need over £25,000 in savings just to start seeing a tax benefit, and yet the average cash ISA holds only around £13,000. Even for higher-rate taxpayers, most of today’s cash ISAs don’t pay enough interest to make a real difference.

If 20% of the £4.7 billion recently added to cash ISAs had instead gone into UK equities via stocks and shares ISAs, it could have generated a £4 billion boost to UK-listed companies and saved the government £2 billion in tax relief.

Our view is clear: from April 2026, the government should stop allowing new cash ISA subscriptions. Existing accounts could remain open, but the country cannot afford to keep directing capital into vehicles that do so little to build wealth or grow the economy.

How to invest in a Stocks & Shares ISA with us

For those looking invest in Stocks & Shares ISA with us, here's a straightforward approach:

1. Learn more about the Stocks & Shares ISA
2. Download the IG Invest app or open a share dealing account online
3. Search for your desired stock on our app or web platform
4. Choose how many shares you’d like to buy
5. Place your deal and monitor your investment

Investors look to grow their capital through share price returns and dividends - if paid. But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.

We offer access to shares around the clock, including on our unrivalled weekend markets.

If you’re not ready to commit real funds, you can try out our demo account to see how it all works. You might also want to check out our IG Academy, which provides free education for all levels, where you can access online courses, live webinars, in-person seminars and a library of video tutorials to sharpen your trading knowledge.

You can buy shares with zero commission* and also earn 4.25% AER variable on your uninvested cash, on balances up to £100,000. But you’ll only receive interest if you’ve traded or held an open position in the calendar month.*

If you prefer a hands-off approach, our Smart Portfolio ISA offers you a fully managed, diversified and tax-efficient solution. With competitive fees and transparent performance reporting, we can help you match your portfolio to your risk profile — just select this option when you open your account.

And if you specifically want to back UK-listed businesses, IG makes it easy to discover and invest in UK-based companies, including both innovative growth stocks and household names. By including UK shares in your ISA, you could help support the future of British enterprise. Feel free to explore UK sectors like clean energy, fintech, biotech and industrials — all available commission-free when buying shares with us.

Scrap Stamp Duty to unlock capital

Another major drag on the UK market is Stamp Duty on share purchases. This little-known tax punishes investors for backing British businesses. At 0.5% per transaction, it may sound insignificant, but the impact is not.

It reduces returns, depresses valuations and deters both domestic and international investment in UK-listed firms. No other major financial centre taxes share purchases in this way. The United States, for example, has no equivalent tax, which helps to explain why their stock market is much more liquid and better supported by retail investors.*

Stamp Duty raises around £4 billion annually, but at what cost? Research by the Centre for Policy Studies and Oxera estimates that abolishing the tax could permanently increase the size of the UK economy by between 0.2% to 0.8%. That’s a decent gain for such a modest policy change — and it could also boost government revenues in the long term, thanks to increased economic activity and corporate profitability.

Even if there were a short-term fiscal shortfall, it could be offset by phasing out cash ISA tax relief, which currently provides minimal public or private benefit. Keeping this tax in place is a contradiction. Politicians repeatedly call for greater investment in British industry, yet they maintain a tax that actively discourages it.

Reward investors for backing the UK

While wealthier investors can access generous tax reliefs through programs like the Enterprise Investment Scheme (EIS), ordinary savers get almost no incentive to invest specifically in the UK market. EIS is a popular and successful policy — offering 30% income tax relief plus tax-free gains for investments in unlisted high-growth companies — but it generally excludes those who want to invest in public markets through Stocks & Shares ISAs.*

To solve this, we are proposing a new UK Equities Investment Scheme (UEIS), modelled on EIS but tailored for retail investors using ISAs. Under the scheme, anyone who holds UK-listed shares within an ISA for three years would qualify for income tax relief of 20% on the amount invested.

This would be a game-changer for retail engagement, as a retail investor investing the full ISA allowance of £20,000 in eligible shares would receive a £4,000 tax break — on top of tax-free dividends and capital gains.

If all new ISA contributions were directed into UK equities, the cost to the Treasury would be around £2.5 billion annually, but the injection of capital into the market could reach £12.5 billion. That’s new money, flowing directly into UK firms, supporting jobs, innovation and economic resilience.

Drive confidence through regulatory reform

Another problem holding back UK investing is the way risks are communicated. Financial regulations, particularly around financial promotions, have become so risk-averse that they arguably now almost discourage people from investing altogether.

The Financial Conduct Authority (FCA) requires all promotional material to be ‘fair, clear, and not misleading.’ This appears at first glance to be a sensible goal, but in practice, these rules are often applied so cautiously that firms are afraid to speak plainly about the benefits of investing. Instead, people are bombarded with warnings, caveats, and small print.

The upshot is that many fintech firms are reluctant to market their services, especially if they are aimed at first-time investors. The end result is that investing is portrayed as niche, risky or suitable only for the wealthy or financially savvy. This perception is very possibly harmful to national prosperity.

The FCA could act to clarify and streamline its guidance. Responsible firms should be empowered to communicate effectively and confidently with customers, with the regulator shifting away from a default mindset of overprotection and instead focusing on enabling informed decision-making.

Rebalance the national investment culture

The UK has become a nation of cautious savers, rather than confident investors — and this may require a deep cultural shift. This isn’t simply due to overregulation or poor returns but is a result of decades of underinvestment in financial education. Most adults in the UK were never taught how compound returns work, how to assess investment risk or how the stock market contributes to economic growth.

As a result, many people feel excluded from the world of investing or assume it’s simply not for them.

Changing this will require a co-ordinated national effort. We could choose to embed investment literacy into the school curriculum, workplace pension schemes and public service broadcasting. Campaigns could focus on explaining the basics: the difference between saving and investing, the importance of diversification and how investing in UK companies can benefit everyone.

On a broader level, empowering people to make their own informed financial decisions is commonly believed to be one of the most effective ways to reduce inequality and promote long-term economic stability.

At the same time, cultural change must be accompanied by structural reform. People need better tools and incentives to act on what they learn. ISA reform, combined with investment education, could be a powerful double-act.

ISA reform summed up

• The UK stock market struggles with shrinking listings and investor interest, partly due to ISA tax policies that favour low-return cash ISAs over stocks and shares
• Our reform proposals include ending new cash ISA subscriptions from 2026, scrapping Stamp Duty on share purchases to boost market liquidity, and introducing a new UK Equities Investment Scheme offering tax relief to retail investors holding UK shares in ISAs
• Investor confidence may be hindered by overly cautious financial regulations that limit clear communication about investing benefits, discouraging first-time investors and perpetuating a perception that investing is risky
• A national cultural shift is needed, combining improved financial education with structural ISA reforms to encourage confident investing, support UK businesses, and promote economic growth

*Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.

*Other fees may apply.