Savers are sitting on a goldmine that could increase their long-term income, help firms grow and power the economy.
If Britons invested just a quarter of their spare cash in equities and funds, that could inject £740 billion into the economy. Instead, they keep most of their money in bank or savings accounts, where it is losing value steadily over time.
About 16 million people in the country have more than £10,000 of free cash, with many holding significantly more. But most steer clear of shares.
In the past two decades, the number of households directly owning stocks and shares has fallen from 23 to 11 per cent.
Charlie Walker, deputy chief executive of the London Stock Exchange, says reverberations spread far and wide, adding: ‘It is important we build the UK population’s stake in the UK economy and ensure they benefit from its growth.’
Walker’s call for change comes ahead of the Autumn Statement on Wednesday, when the Chancellor is expected to unveil initiatives around savings and investments.
Many say change is overdue. The slump in share ownership is a dramatic reversal from the 1980s, when then Prime Minister Margaret Thatcher used the ‘Tell Sid’ campaign to encourage ordinary men and women to invest in British Gas.
That privatisation, and others, saw a wave of shareholders enter the UK stock market.
Today, much of that legacy has been lost, to the detriment of individuals, businesses and the economy more broadly.
Households lose out because even the best savings accounts tend to offer below-inflation interest rates, so the cash is worth less and less over time.
Shares, by contrast, deliver higher long-term returns than almost any other form of investment so money invested today should be worth much more in the future.
Businesses lose out because they are starved of the cash that allows them to expand, develop and create more jobs on home turf. Instead, many look overseas for funding or they are bought by foreign firms. In the past five years alone, more than 400 businesses – together valued at almost £425 billion – have been subject to takeover bids from overseas predators, allowing investors from abroad to reap the benefits of home-grown firms.
The economy loses out too, as big companies pay more tax, employ more people, invest more money in research and development and work with more local businesses. ‘Broadening retail share ownership would be a win-win for the UK. It would boost the trading in companies’ shares, spread the wealth and help consumers feel truly invested in the businesses that drive our economy,’ says James Ashton, chief executive of the Quoted Companies Alliance.
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The trend away from shares is especially frustrating as the UK boasts the largest financial market in Europe, while London’s financial sector ranks alongside New York’s in terms of global appeal and expertise. Yet nearly 60 per cent of Americans own shares directly..
The global financial crisis, years of austerity and recently galloping inflation have not helped. But Americans have endured similar challenges and remain committed to equity markets. Most experts believe Britons’ aversion to shares goes beyond tough economic conditions, blaming red tape, fear and regulation.
Individual Savings Accounts (Isas) and stamp duty attract criticism with calls for reform.
Isas allow savers to invest in shares without paying tax on the income they earn from dividends or the gains they make when shares increase in price. The perk is paid for by the UK taxpayer, but investors can buy shares in foreign firms and still receive the benefit.
‘About £450 billion is invested in stocks and shares Isas, but less than 15 per cent of that is invested in UK companies. It’s nuts that I can get tax breaks for investing in US stocks, shares or tracker funds,’ says William Wright, founder of think tank New Financial, whose report – Widening retail participation in equity markets – highlights the £740 billion prize that could be awarded to UK businesses.
Wright says Personal Equity Plans (Peps), which predated Isas, obliged investors to buy British, an obligation many believe should be reintroduced. He adds: ‘Anyone buying a stocks and shares Isa should have to put a third or a half of their money into UK firms to get the tax perks.’
Current regulations also mean that when individuals buy shares in UK companies, they pay 0.5 per cent stamp duty but when they buy overseas shares there is no charge.
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