We are now a few weeks into the life of the new government and are beginning to get a good handle on their main concerns and direction of travel. It can be summed up in a single word – growth.
New chancellor Rachel Reeves has even said boosting UK growth is “a national mission”. Indeed, it is beginning to feel like everything the Treasury says or does comes back to the agenda of encouraging investment in the UK.
Thinking about the saving and investing world, if we are to ‘grow UK plc’ then we need to start with UK capital markets.
These are facing well-documented challenges, with their strength ebbing away as more companies go elsewhere for their listing and then struggling to attract new ones in. But we need to do more to create an environment that ensures we get the highest possible participation in our own capital markets from our own citizens.
Nearly £750bn is held in Isas owned by UK adults. It’s a strong brand
Looking at how ordinary people invest seems a sensible starting place. Isas have been one of the UK’s success stories in helping people to save and build resilience into their financial wellbeing. It’s a strong brand. Nearly £750bn is held in Isas owned by UK adults.
But HM Revenue & Customs (HMRC) data suggests there are around three million people in the UK with £20,000 or more invested in cash Isas and no money invested in stocks and shares Isas. That could be the wrong choice for them if they are investing for the medium or long term, and it’s the wrong result for the UK if we want more investment in our capital markets.
If just half of that money was invested for the long term in stocks and shares Isas, an additional £30bn of investment would be unlocked. That is a conservative estimate. Indeed, the actual figure may be considerably higher, given HMRC’s data indicates many of those individuals hold a cash Isa balance far in excess of £20,000.
Behavioural science has already taught us too much choice can lead to overwhelm. We need to dodge this analysis paralysis
So, how do we bring about an investing revolution? We start by looking at the choices people face.
Once they have made the all-important decision to save or invest, they may quickly conclude an Isa is the best route – but they are then faced with six different types of Isa to choose from. The previous government even threatened to complicate matters further by introducing a seventh type in the ill-conceived UK Isa. Hopefully that is now a distant memory.
Behavioural science has already taught us too much choice can lead to people feeling overwhelmed and can result in low levels of engagement. We need to help people dodge this analysis paralysis.
Creating a simplified Isa regime by, at the very least, combining cash and stocks and shares Isas, seems an obvious first step – creating one simple product, with one set of rules. Investment choice should be a product characteristic, rather than the defining feature.
This could be a gamechanger, meaning more people get the advice and help they need to make better investment decisions
Once people are saving in a single Isa type, it should be easier to nudge them from the familiar waters of cash interest to the less well-known investment route. If we can press ahead with the reforms promised by the advice guidance boundary review, this should result in higher levels of regulated advice, as well as targeted support for those who don’t want or need advice.
This could be a gamechanger, meaning more people get the advice and help they need to make better investment decisions.
Given half the assets our customers at AJ Bell invest in in their Isas are UK focused, it’s obvious that if we can encourage more Brits to invest, this will invigorate UK capital markets.
And that’s what Reeves’ mission is all about. A revolution to encourage greater levels of long-term investing that will boost the UK’s growth, but, importantly, also help people to achieve better financial lives.
Rachel Vahey is head of public policy at AJ Bell
