Richard Stone, our Chief Executive, highlights the need for more incentives for the everyday investor.
An Open Letter to the Chancellor of the Exchequer
Firstly, congratulations on your recent appointment as Chancellor. The result of the General Election in December, which secured the largest Conservative Majority since 1987, should bring stability and certainty to the UK political landscape and economy for the foreseeable future. That stability and a clear sense of direction will be welcomed by our customers, personal investors across the UK, who have had to try and navigate stagnant markets and political indecision for the last three and a half years.
I am writing to you as the Chief Executive of one of the UK’s leading independent personal investment platforms. We provide custody and trading services to over 300,000 personal investors in the UK through our own brand and website, as well as for third party partners.
From the very inception of our business we’ve been strong advocates for the interests of personal investors and we regularly ask our customers for their views. As personal investors there are a number of key steps which they will undoubtedly be hoping you will use your new and powerful mandate to deliver. I’m writing to you before your first Budget to share some thoughts as to the steps we and our customers would like to see taken to ensure this country continues to benefit from vibrant capital markets and a strengthened savings and investment culture centred on broader participation. Before turning to those points it is though worth looking at a broader context.
Since the 2008 financial crash the monetary policy response centred on low interest rates, has resulted in a greater concentration of investment returns in the hands of private capital. There are a range of data points to support this but perhaps most telling is the fact the number of quoted companies on the stock market has roughly halved over the last 10 years. This is not a UK specific issue with the position in the United States being broadly similar. Asset owners and owners of capital have seen their wealth increase while those not owning capital have seen their relative wealth and standard of living decline.
The Conservative’s stunning victory in December’s election was secured as a result in large part, of former Labour voters particularly in areas in the north of England voting Conservative. Many of those who voted Conservative rejected Labour’s economic prospectus but feel disengaged from the economy and business around them. There needs to be a reinvigoration of the capital markets and a renewed emphasis on mass participation and ownership. The example set by BT of giving shares to all their staff is one recent demonstration of what can be done. Requiring stock market flotations to have a public or retail element as used to be the case would be another. To close the wealth gap and earn the long term support of those voters who turned to the Conservatives this time, for the first time, means taking action to engage them in the prosperity of the UK economy.
Our customers were clear in asking for three things from the political parties in the run up to the General Election, although disappointingly none of the parties made any particular mention of investment or personal investors in their manifestos. Personal investors play a key role in providing capital particularly to the small and medium sized enterprises which form the engine that drives growth in our economy. I believe you can use your first Budget to help deliver these requests.
Our customers want to see a greater emphasis being placed on financial education. This goes hand in hand with the broader point above about opening up access to capital and widening ownership within the economy. We need to see a real focus on financial education within the school curriculum with teachers properly trained to deliver the material and not being left to cover these vital topics as part of the Mathematics or PSHE curricula. We believe this will only be properly delivered by having a mandated financial awareness GCSE as only by establishing such a qualification, and suitable versions already exist but are not widely adopted, will this be taken seriously.
In terms of your first Budget I believe you can signal greater investment in this area.
Our customers also want to see the Government commit to stability in the tax system. The Individual Savings Account (ISA) regime has been at the heart of the savings and investment landscape for many years now and needs to continue to be supported. Indeed we believe there are some ways in which it could be simplified and its take up expanded including through workplace incentivised savings. The pension system has been subject to continuous tinkering and change which acts to discourage individuals from taking that long term investing decision.
In your first Budget I believe you could commit to no further undermining or weakening of long term pension savings, you could signal a review to simplify the ISA system following the complexity which has arisen from the introduction and withdrawal of the Help to Buy ISA, then the Lifetime ISA, the Innovative Finance ISA etc.
This then brings me to the final request which is for greater incentives to encourage the next generation to save and invest. As I noted earlier the wealth gap has grown considerably and it is also a gap which is exaggerated by age with a greater concentration of wealth among the more mature parts of the population. That demographic is highly conscious of the need for future generations to be encouraged to save and invest more for theirs and their family’s financial futures.
I believe it would be possible to introduce greater incentives for intergenerational savings and investments. For the next generation coming through the risks and costs associated with investment may put some off. With peer affirmation now being one of the principal ways in which individuals seek advice or support, we believe one option may be to look at an Investment Club ISA account or similar such vehicle, incentivising small groups of friends to club together to share ideas and pool risk. Investment clubs, of which we are one of the largest providers, are a great way for individuals to share ideas and the investing experience which can be particularly helpful where an individual is regularly investing modest sums each month and from which pooling with others can deliver cost and diversification benefits.
To conclude I would just highlight one other specific opportunity which is aligned with the next five years of your Government. That is the Child Trust Fund (CTF) regime which was established by Gordon Brown and gave every child born between 2002 and 2011 a sum of money in an account which matures when they are 18 and to which other contributions could be made. The first recipients turn 18 this September and start to take ownership of those accounts in full. Over the next 10 years some six million young adults will reach 18 and find themselves in possession of a maturing CTF. This involves total assets which run into billions of pounds and can act as the seeding of many of the initiatives noted above, not least around financial education and encouraging a habit of saving and investing. I would urge you, as one of the key measures in your budget, given the pressing timing approaching this September, to grasp the CTF initiative and use it as the vehicle to deliver improved financial participation among that next generation. This is an opportunity which is arguably all the more important for those young people in areas of the country which have been more economically disadvantaged over the last ten years and have though chosen this time to place their confidence in a Conservative Government.
I wish you well in all your endeavours as Chancellor. It is a huge responsibility and the people have placed their trust in your party to deliver, and to deliver not just for the traditional Conservative voter but for all those who voted Conservative in historically Labour strongholds as well. I believe the General Election result provides a huge opportunity. By grasping a new vision of capitalism and re-energising mass participation in capital so individuals can take control of their financial futures and participate in the success of the businesses they work for and interact with, then we will truly be able to unleash the potential of this Country and all it has to offer.
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