LISA0159

Written evidence submitted by Quoted Companies Alliance

Introduction to the Quoted Companies Alliance (QCA):

The Quoted Companies Alliance represents the UK’s 1,000+ small and mid-sized quoted companies and the firms that advise them. Our members are quoted on the Main Market, AIM and the Aquis Stock Exchange.

Collectively, small and mid-sized quoted companies represent 80% of companies on the UK’s public markets. They are a vital source of job creation and tax revenue and drive economic growth. In 2023, companies on AIM provided £68 billion Gross Value Added (GVA) to UK GDP and contributed £5.4 billion in corporation tax. The smaller companies sector is also a highly productive sub-sector of an already productive financial services sector. For example, AIM companies are more productive than the national average at £87,100 GVA per employee (compared to £58,327), and support regional growth: as of September 2024, only one English county lacked a small company headquarters.

Being a quoted, or, listed company provides a range of benefits for businesses, including increased exposure to a greater range of investors, access to a continuous source of equity and the corresponding possibility of sustainably growing the company.

Small and mid-sized quoted companies are a crucial part of economic growth. For example, one-third of listed UK companies with a market value of more than £2 billion in 2024 were once a smaller company in the past 20 years and subsequently have more than doubled in value in real terms.

It is essential to ensure that public companies can operate in an environment where their potential is fulfilled, helping to ensure a healthy and resilient UK economy.

The ISA Regime

The Lifetime ISA has strengths in encouraging early savings and supporting first-time buyers but its inflexibility, limited retirement benefits, and potential to undermine workplace pensions outweighs the benefits of the scheme. Combining house purchase and pension saving into one product creates a tension between competing priorities. Savers may deplete their LISA savings for a house deposit, leaving little for retirement. The 25% withdrawal penalty on funds not used for a first home or retirement effectively takes back the government bonus and a portion of the saver's own contributions, making the LISA rigid and punitive for those facing financial hardship or changing circumstances.

While the intention of the lifetime ISA is admirable, the execution is outdated, and the QCA believes the whole ISA scheme needs reform, this includes both the cash ISAs and lifetime ISA.

While we recognise that this is not the focus of this consultation, we would argue for broader simplification to take place across the whole ISA regime, specifically, the merging of the Stocks and Shares ISA and Cash ISAs. A reduced number of ISAs would simplify the ISA offering for consumers and should improve take-up of the UK ISA.

At the QCA, we believe the Government should introduce several measures to reform ISAs in order to make them more effective, appealing to investors and supporting of the UK economy.

1. Firstly, ISAs would benefit greatly from simplification as it would not only make them more accessible to a broader range of individuals, including those with lower levels of financial literacy, but would also have the potential knock-on effect of increasing investment.
1. Any changes must be straightforward to implement and monitor, in addition to providing simplicity for individual investors to ensure take-up is high.

2. Secondly, it has been some time since the ISA allowance was updated, which would naturally increase investment into UK plc
1. Increasing the ISA allowance from the current limit would produce substantial benefits.
2. Given that the LISA allowance has been frozen at its current level for a number of years, there is a strong argument that an increase is long overdue.

The UK ISA have the potential to create the deeper pools of capital that the UK requires and should make a significant contribution to reversing the declining numbers of companies that choose to list and/or remain listed in the UK. Further, the UK ISA should reconnect domestic investors with local companies, foster a share-owning culture and crowd-in further investment.

The QCA urges the Treasury Select Committee to consider an inquiry on the broader ISA regime rather than just the lifetime ISA – which we believe is too narrow in scope. The QCA has campaigned for the creation of a UK ISA - at a time of high levels of domestic capital flowing out of UK equities leading to a significant level of de-listings on the UK’s exchanges.

The QCA has welcomed many of the broader changes to the UK’s public market infrastructure that are currently taking place. However, unless these companies have access to the funding they need to scale-up and grow, the UK risks losing them to its international competitors.

We previously argued for a more extensive allocation of capital to be held in UK assets than the one being proposed in this consultation on the grounds that this would stimulate greater inward investment in domestic stocks. We highlighted our preference for a higher allocation of 50% of the total £20,000 allowance to be held in British assets.

Currently, there is approximately £300 billion sitting in Cash ISAs, which are often invested unproductively in turn providing savers with poor returns. These ISAs could yield better results if they were invested into more volatile stocks and shares Isas. 

The QCA is also working to educate the public on the easy and importance of investment in shares. We believe that investing in shares should be as well understood and straightforward as investing in cryptocurrencies. Crypto has become increasingly popular – with 10% of UK holding or previously held a crypto asset. Cryptocurrency is much easier to own than stock and owners tend to be younger people, despite the risks. Whilst stocks are inherently safer than cryptocurrencies, there is future concern that people will turn to digital assets rather than traditional investments.

February 2025