Savers will no longer benefit from an additional £5,000 tax-free bonus after the Labour Government has reportedly decided to scrap plans for the British ISA, despite previously stating there were “no plans” to ditch the scheme.

The British ISA, originally announced in the March Spring Budget by previous Chancellor Jeremy Hunt, would have allowed savers to invest an additional £5,000 tax-free in UK stocks, on top of the £20,000 annual ISA limit.

The product was to be introduced to promote investment in British businesses.

However, according to a report from the Financial Times, the Government has decided to abandon the plan, with an official stating: “We are not planning to complicate the ISA landscape even further.”

This reversal contrasts sharply with Labour’s pre-election stance, where the party assured they had no intentions of scrapping the British ISA. A Labour spokesperson told the City A.M. in May that the party aimed to “make it as easy as possible for people to feel the benefits of saving and investing.”

The Treasury initially placed the scheme “under review” in June, but this was delayed due to the General Election.

The proposed scheme received criticism at the time of its announcement, with analysts stating the product would add “unwelcome complexity”.

Michael Summersgill, chief executive at AJ Bell, previously pointed out that the product would only benefit a small number of people if enacted.

He also noted that 50 percent of the money AJ Bell’s customers invest through their stocks and shares ISAs was invested into UK assets anyway, so the new allowance would have “had no impact whatsoever” on their investment behaviour.

On the recent developments, Mr Summersgill, commented: “The UK ISA was a political gimmick that was doomed to fail in its objective of boosting investment in UK Plc.

“The new Government deserves huge credit for consigning this ill-conceived idea to the policy dustbin and will hopefully now take a more sensible, long-term approach to ISA reform than their predecessors, focused on simplification for the benefit of consumers.

“The benefits of simplification for consumers and the UK economy could be substantial. In particular, merging Cash ISAs and Stocks and Shares ISAs – the two most popular ISA products in the UK – would make it easier for those holding money in Cash ISAs to transition towards long-term investing.”

He added: “Merging Cash and Stocks and Shares ISAs is the obvious starting point, a reform that would make life easier for investors and would-be investors and could provide a significant boost to UK capital markets into the bargain. Over the longer term, the Government should consider whether the best features of the current ISA regime can be combined into a single ISA product.

Mr Summersgill pointed out that HMRC data shows approximately three million people in the UK have £20,000 or more in Cash ISAs but no investments in Stocks and Shares ISAs. He suggested that if just half of these funds were invested long-term into shares, it could unlock an additional £30billion.

Dan Olley, chief executive of Hargreaves Lansdown, also praised the Government’s decision, stating: “We’re pleased that the Government will not be pursuing this because simplicity is key when it comes to getting people to start investing. The UK Isa would have added complexity with little real benefit for many.”