Martin Lewis calls for 'starter investment ISA' as Cash ISA cut reprieved for now

The thought behind cutting the cash ISA allowance is to encourage, especially younger people, to invest instead via stocks & shares ISAs (which, in the long run, is likely to be better for them and the economy).

I think it's unlikely to work. If people want savings, they want savings. It's also unfair to deny older people, who have to be more risk averse, when trying to nudge younger people. As the Government has repeatedly said none of this is about raising revenue, I've suggested an alternative concept...

Launch a new 'starter investment ISA'. You can put, say, up to £1,000 in (whether lump sum or dripped in monthly) and, as well as it being tax-free, you'll get, for example, a 5% boost on contributions from the state (with the cost split between investment providers and the state) as long as the money is kept in investments for a set time (for example, one year).

This is a sweetener to encourage people who've never invested to dip their toe in the water. Part of the issue is lack of education and guidance about risk or reward and investing, so doing this would enable it to be more talked about, and let people take the plunge with less risk (some risk is offset by the 5%).

It would be set up so you could use the same account to invest in a standard investment ISA too. So people can seamlessly add more funds to it (no bonus over the first £1,000 though).

It could be capped at a set age (probably 40, like Lifetime ISAs) if it needed to be targeted.

Don't worry about the numbers or exact rules, it's a conceptual suggestion. Thoughts welcome.

I thought it worth coming back to the 'starter investment ISA' idea I put out the other day (below). The idea is you give a specific boost to first-time investors within a normal investment ISA and this could positively expose people to investing.

I made this suggestion to the government at the same meeting as when I explained why I thought cutting the cash ISA limit wouldn't significantly achieve their stated aim. That aim, which I support, is to encourage younger people to invest, which over the longer-term should be beneficial to those individuals and the economy.

The government robustly told me the idea behind cutting the cash ISA limit wasn't to raise revenue. With that in mind, I explained that I thought most would still save, not invest; just have to pay more tax on it. It especially penalised older savers who can't take as much risk.

Both those points meant it was a hugely unpopular concept (I pointed to the response to polls and messages on my social media feed). Plus, it would effectively favour big city investment firms over building societies. And reducing building societies of funds could lead to higher mortgage rates.

My view has always been if we do want to encourage younger people to invest more (and we should), we need better education, easier guidance regulations, and possibly some extra incentives. For wealthier individuals, huge investment incentives exist eg, the very generous Seed EIS scheme.

So, why not have something simple at the starter level for all? Let people dip their toe in the investment water – with a carrot, not a stick. Which is where my concept with the starter investment ISA comes from. It's not primarily about the size of the investment, more it’s an easy start point, that reduces the risk barrier, provides some confidence that it’s suitable for first timers and creates a talking point.

After all, many who start investing, and spend the time to understand it, then stick with it. I hope to have more conversations on it (no idea if I will yet).