Open Letter from Tim Sawyer CBE to the Chancellor

Dear Chancellor,

Ensuring IFISAs Are a Recognised Part of the ISA Landscape

As discussions progress regarding the future structure of ISAs, we urge the government to ensure that all ISA types, including Innovative Finance ISAs (IFISAs), are recognised and preserved within the UK’s investment framework.

Amid these discussions, much has been reported about potential changes to ISA structures, including proposals to combine Cash ISAs and Stocks & Shares ISAs, as well as reducing Cash ISA limits in an effort to encourage greater investment in UK stocks.

We welcome the government’s ambition to encourage more investment into UK businesses and ensure that private capital plays a greater role in supporting economic growth. However, this conversation has so far overlooked an existing ISA type that is already directing private investment into UK businesses: the IFISA.

IFISAs: A Growing Investment Choice

Since their introduction in 2016, IFISAs have provided a tax-free way for investors to lend directly to UK businesses, supporting small and medium-sized enterprises (SMEs) which are vital to the UK economy. Unlike Stocks & Shares ISAs, which invest in publicly listed companies, IFISAs provide capital to privately owned businesses.

Although IFISAs may not be suitable for every investor, their steady adoption demonstrates strong demand for tax-free, fixed-income opportunities. With a range of providers offering IFISAs at different entry levels, these investments serve a broad spectrum of investors. Investment in IFISAs rose 46% year-on-year from £563m in 2022 to £821m in 2023, according to the latest HMRC data, reflecting growing investor appetite for alternative, tax-free investment options that offer fixed income rather than market-dependent returns.

The Role of IFISAs Alongside Cash ISAs and Stocks & Shares ISAs

While we understand the value in making investment choices clearer for consumers, simplification through consolidation is not necessarily the best course. Rather than removing or merging ISA categories, we believe it is important that investors have access to a diverse range of tax-free investment options that suit different financial objectives and risk appetites for the following reasons:

• Preserving consumer choice:
  A well-functioning ISA system should provide consumer choice, whether it’s for cash savings, stock market growth, or fixed-income investments like IFISAs. We believe increasing awareness, rather than imposing restrictions, is the best way to empower consumers.
• Mobilising capital for UK SMEs:
  While Stocks & Shares ISAs channel capital into publicly listed companies, IFISAs enable private investors to directly lend to British SMEs who play a crucial role in our nation’s economic resilience and job creation.
• Recognising investor demand:
  IFISA adoption has demonstrated investor appetite for tax-free fixed income invest/opportunities alongside traditional cash and equity-based ISAs.

Keeping IFISAs Visible and Understood by Consumers

At FOLK2FOLK, we have seen first-hand how IFISA investments support the growth of UK businesses while providing investors with monthly, tax-free income. In light of ongoing ISA policy discussions, we urge policymakers to recognise IFISAs as a vital part of the ISA landscape and ensure they are included alongside Cash ISAs and Stocks & Shares ISAs in consumer education efforts.

Ensuring investors are fully informed about all tax-free investment opportunities, their distinct roles, and associated risks will help maintain a diverse, accessible, and effective savings and investment landscape.

Yours sincerely,

Tim Sawyer CBE
Chairman, FOLK2FOLK Ltd

Sent via email to: CE***********@************ov.uk​