Plans for an additional ISA allowance may only suit a “narrow market” of savers and could fall foul of financial legislation, a group has warned.

Chancellor Jeremy Hunt set out plans for a British ISA in his Spring Statement, which would provide an extra £5,000 a year allowance to be invested in UK companies. This would be separate from the current £20,000 allowance.

Experts at wealth firm Aegon have warned the proposed account may only appeal to a narrow group of savers.

Pensions director Steven Cameron said: “The British ISA is expected to appeal primarily to individuals who already fully use their existing £20,000 ISA allowance.

“Within this, those who have chosen to hold most or all in cash rather than stocks and shares are less likely to be suited to this.

“Even for individuals ‘maxing out’ their stocks and shares ISAs, there are questions over the appropriateness of increasing exposure to UK equities rather than spreading their investment risks through a more geographically diversified portfolio.

“Given the narrow target market, the British ISA looks like a very niche product. But the Government proposals look set to create a lot more complexity to the ISA regime.

“With a maximum annual subscription of £5,000, it could prove very challenging to cover costs while offering this product at a charge level that provides value for money.”

He also warned that given the narrow group who would likely go for the savings option, it could face issues with the Financial Conduct Authority.

He explained: “While we understand why the Chancellor wants to encourage more investment in UK companies, the financial regulator, the Financial Conduct Authority (FCA), recently introduced new Consumer Duty regulations meaning financial providers must demonstrate any product they sell offers good value for a specific target group of customers.

“The proposed British ISA could raise challenges here as it will have a particularly narrow target market.”

Mr Cameron said there are other policies the Government could bring into help boost the UK economy.

He explained: “Another option with potentially much wider scope would be for products to clearly explain upfront how much they invest in UK equities.

“This could be shown alongside other important aspects including investment risk profile and investment mix. Individual investors could then make informed decisions, perhaps with the help of advisers, on the extent to which they want to support the domestic economy while pursuing longer-term goals.”

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