Chancellor Jeremy Hunt has all but said that a British ISA will be part of his spring budget on 6 March.
Whatever their differences elsewhere, this is one area that seems to have good cross-party agreement. Labour’s plan for financial services has already promised a simplification of the ISA system.
What’s more, this is one idea that could genuinely take off.
Since the 1980s when Sid was first around encouraging us to buy shares in British Gas, there has been a marked fall in retail investing, alongside a decline of UK equity holdings by our pension funds. But when we look abroad, countries such as the US, Germany, France and China have trended in the opposite direction in one or both of those areas.
People in other countries are looking beyond owning a house or stockpiling cash to secure their future prosperity. Furthermore, the custodians of their futures – pension funds - are deploying more investment capital to support businesses within their home market. Why hasn’t the UK followed suit?â¯
There are many reasons, including our growing cultural intolerance to risk, our views on housing as the mainstay for investment return, structural constraints in insurance and pension regulation and a myriad of other factors – some of which are being addressed by policy makers and regulators – that have led companies to pursue their futures in other markets. The end result is a reduced flow of new companies and therefore fewer choices for UK investors.â¯
More retail investors delivers more liquidity, which supports more companies to be able to innovate, to invest and to expand
People respond to incentives and politicians are right to start by looking at ISAs, which are a well-trodden path for encouraging tax efficient saving and investment. That’s why in our budget submission we called for the Chancellor to explore an evolved or new ISA to promote ownership of UK stocks – the concept of a British ISA. At present you get the exact same tax benefits regardless of whether you buy shares in a UK company or one in another market.
In our submission we also call for stamp duty on equity transactions to be scrapped. This is after all a tax that discourages investing in owning a stake in UK companies. These are ideas that could be quick wins for supporting retail engagement and liquidity in our stock markets. Companies looking for investors will have to work hard to demonstrate their value too of course.â¯
How easy is it to invest? Relatively easy – there are many new financial technology platforms alongside long-standing investment houses that enable straight forward access to buying and selling shares.
This matters. We are all living longer and will expect more in later life. The taxpayer will have to pick up the shortfall between expectations and reality based on current data on the average pension pot of a UK citizen. Data from New Financial illustrates that if households in the UK invested a quarter of their financial assets in equities and funds (instead of just 15%) it would unlock an extra £740bn of capital.â¯â¯
The steps and outcomes are all cyclical and connected. More retail investors delivers more liquidity, which supports more companies to be able to innovate, to invest and to expand. Which all drives economic growth here in the UK.
It also leads to a more engaged society who will feel they have ‘skin in the game’ by owning some of UK plc.
Let’s get people interested. Let’s get investing.â¯
Conor Lawlor is Managing Director for Capital Markets at UK Finance.
