What is changing?

So I've been considering the implementation of the new ISA limits changes and, in my, view how they seem unnecessarily complex.
As a quick reminder, the Chancellor has made the following changes:

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• For under 65's, the maximum contribution to a Cash ISA is reduced from £20,000 per year to £12,000 per year
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  Non cash ISA rules to prevent using Investment ISAs to hold cash or wholly cash-like investments - the Chancellor's approach is to tax interest earnt at 22%, with the Financial Services Provider paying this directly to HMRC.  Further complicating this, the personal Savings Allowance will not apply to this

What are the challenges?

The policy aim is to encourage retail investment and ultimately support a better return for savers.  The aim here is something I absolutely agree with.  In the long term, investing brings better returns than interest on cash savings.  I do have an issue with the approach though.  

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•  For starters, we are now potentially taxing tax free savings which is a concept that is really difficult to clearly explain, particularly as we aren't taxing all tax free savings accounts.  Commentators are already saying that this is confusing.
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  There will be an implementation cost for Financial Services companies that could be substantial.  They have to add the ability to automatically tax certain types of return on certain types of ISA, to report to HMRC and to transfer the tax take to HMRC.
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  People will be taxed for holding cash on accounts to cover management fees charged by a number of providers - they will need to cater for a 22% increase in this value.  This does not seem fair.
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  Finally, the perception around what this policy is trying to achieve is tainted by the implementation.  Rather than looking like a policy to encourage savers to invest to get better returns, it looks more like a tax grab that penalises customers for having a lower risk profile, picking the wrong kind of investment, maintaining a buffer or taking their time to pick the right investment.

Keeping it simple

The KISS ("Keep it simple, stupid") design principle was first noted by the US Navy in 1960 and it looks to ensure the simplicity is a design goal.  Unfortunately, It is clearly a principle that the Treasury and HMRC are not familiar with.  Cynically, I would say this is because there is money to be made from opaqueness and confusion.  And indeed setting the tax rate higher than the basic rate would seem to indicate that the Government think this too.

But could the objectives have been achieved in a simpler way?  I certainly believe they can and below is how I would have implemented the policy and why.  

I would have made two changes:

1. Mandate that cash balances in non-cash ISA's must not pay interest
2. Publish a list of non-qualifying investments for non-cash ISA's and mandate that this must be applied by Financial Services companies

This is a radically simpler proposition than what is currently proposed and delivers a number of benefits:

Conclusion

HMRC need to pay more attention to their own tagline - "Tax doesn't have to be taxing".  It is widely accepted that the tax system is over-complicated.  Until policy makers and advising government departments start to challenge their thinking and look for simpler answers, this situation will not change.  The proposed ISA changes are a classic example of an over-thought solution and I believe that stated aims can be achieved much more simply and much more cheaply.