Our Chief Executive, Richard Stone, outlines three things he expects to be included in the impending Budget.
The Share Centre’s 2018 Budget wish list
- Improving Financial Education
Promote a Financial Awareness GCSE using Child Trust Funds
- Increase public participation in capital markets
Implementation of a working party to investigate the issue of public participation and individual ownership and set up an action plan to reinvigorate the capital markets
- Continue to encourage savings and investments
Extend LISA limit and affirm a stable tax regime for ISAs and Pensions
The Chancellor of the Exchequer will deliver his budget on 29 October amidst generally positive economic news, albeit tempered by continuing uncertainty surrounding the outcome of the Brexit negotiations. Philip Hammond will undoubtedly be hoping those discussions reach some resolution before the budget.
The better economic news enables the Chancellor to take a slightly more relaxed approach to some spending commitments and certainly, after holding tightly onto the purse strings for some years, the demands to relax that grip a little and spend a bit more are reaching a crescendo that the Chancellor cannot ignore. This will leave little room for manoeuvre on the tax side of the equation.
In terms of personal investors, we would therefore expect the Chancellor’s budget to deliver good news for those companies aligned with the spending priorities: housing, infrastructure and healthcare.
The economic outlook for personal investors has improved in recent times too, most notably with the return to positive real wage growth (wages now growing faster than inflation). This should increase consumer spending power, but should also therefore enable individuals a little more headroom to enable saving and investing.
We therefore call upon the Chancellor to take action in three specific areas in his forthcoming budget:
1. Improving Financial Education:
The Government needs to invest in and mandate a fundamental shift in individuals’ financial skills and capabilities. This could take the form of promoting a Financial Awareness GCSE, using the maturing Child Trust Funds (impacting over 6 million young adults in the years ahead) to incentivise improved learning of financial skills and encouraging the next generation of teachers to take on financial education incorporating it in many different areas of the curriculum. This will require commitment, incentives and investment from Government.
The Government should also look at ways and incentives to increase the passage of financial awareness and assets from one generation to another – not just through inheritance but while multiple generations are living alongside each other, enabling those who have benefited through previous decades to pass on more of their financial knowledge and accumulated wealth to subsequent generations.
2. Increase public participation in capital markets:
The policy response to the financial crisis of 2008, particularly focused on quantitative easing, has served to inflate asset prices and enable greater corporate funding and ownership through cheap debt and private equity. The result has been a dramatic fall in the number of publicly quoted companies (particularly in the UK and US) and an increasing sense of being excluded by a now large element of the population. There needs to be a renewed push by Government to encourage and enable individuals to participate in the capital markets. There are many ways in which this can be done such as encouraging companies to introduce Share Incentive Plans (SIPs), looking at the relative tax treatment associated with private equity/debt as compared to public equity, and reducing frictions within the market, for example, through the removal of stamp duty on share trading.
A failure to embrace and encourage individual ownership and participation will result in increasingly loud calls for Government to step in and take ownership on behalf of individuals – acting as their proxy. This is the sentiment that John McDonnell was tapping into during his Labour Conference speech, but the involvement needs to be both more widespread and more direct – encouraging greater employee and customer ownership of businesses would be a good starting point.
We believe a working party drawn from across Government (the Treasury, and the Departments for Business and Work & Pensions) should be put in place to investigate the issue of public participation and individual ownership, engaging with the financial services industry and individuals to understand the issues and barriers which deter participation. This working party should be tasked with delivering a plan of action to drive real change in this area and reinvigorate the capital markets and the way they enable and encourage participation amongst individuals.
3. Continue to encourage savings and investments:
It was pleasing to see the Government reject the Treasury Select Committee’s call to abolish the Lifetime ISA. This relatively new product should be used to encourage longer term saving for the next generation, in addition to workplace pensions, with the benefit that these savings can be accessed should circumstances necessitate (albeit with the loss of the government bonus and a small penalty). Part of the reason this product has not been offered by more providers is its relatively modest size and the Government could look to extend the £4,000 annual limit.
The ISA limit at £20,000 for an individual per annum, effectively £40,000 for a couple, is now a product which reaches up to high net-worth individuals. We see no need for this limit to be extended further and any intended expansion of tax free savings should be targeted more at those with more modest means.
Key to investor confidence is consistency in the tax system and the ISA regime in particular has not suffered from the same raids and challenges as the pension regime. The Government should continue this and the commitment to a strong and stable ISA savings environment. Reviewing the impact and effectiveness of the Dividend Tax Allowance and Interest Income Tax Allowance should be included in the mix as these allowances blur the tax advantaged landscape. We would also encourage the Chancellor not to fall into the trap of predecessors of seeing pension tax reliefs as easy pickings for increased tax receipts. Constant plundering undermines confidence in the system and dissuades individuals from long term saving into pensions for fear of the impact Government actions may have.
In short, we are calling on the Chancellor to encourage individual share ownership and participation in capital markets. To do so requires affirmation of a stable tax regime for ISAs and Pensions, and a marked improvement in the level of financial understanding which will require Government vision, drive and action to make a reality. The investment required should more than pay for itself if a more engaged country understands the need for, and is capable of making, increased financial provision for their and their families financial futures – thus relieving the burden on the state in years to come.