Chancellor tries to woo captains of industry but risks alienating armies of retail investors
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “Rachel Reeves is signalling that the UK is open for business and is desperate to lure in more investment to meet growth targets. But while wooing these captains of industry is important, there is an under-used army of retail investors who also need to be recruited. If ordinary people invested more in stock markets, they not only have a greater chance to build their financial resilience, but their money will also be channelled into UK assets, helping companies get access to funding to grow. Those people who do invest are already enthusiastic holders of UK equities – 75% of trades on the Hargreaves Lansdown platform take place on the London markets.
However, the share of households in the UK that directly own stocks and shares has halved in the last two decades (from 23% in 2003 to 11% in 2022). While the chancellor has stated her aim is to revitalise the London markets, the risk is that if capital gains tax is targeted in the upcoming budget, it’s likely to have the opposite effect. Taxing shareholders more on gains made outside tax-wrapper is hardly likely to incentivise stock market participation.
Withdrawing sums from pension funds, in fear of upcoming changes which might the amount of lump sum which can be taken out tax-free from a pension, could also have unintended consequences on UK-listed assets. Although only 4.4% of UK pension funds’ assets are held in domestic funds and shares, it would still mean a chunk of holdings being removed from equity markets. An Opinium survey for HL showed that 35% of those intending to withdraw tax-free cash from their pensions were planning to put into savings. Only 12% had earmarked this money for a stocks and shares ISA, with more people (13%) planning to splash it on a holiday.
While the chancellor’s desire to plug spending deficits is understandable, and emphasis is being put on building the UK’s infrastructure to boost long-term economic growth, this should not be at the expense of ignoring the financial firepower retail investors could provide. As well as thinking very carefully about the implications of changing the rate of CGT, tax-free allowances should be raised as they are at their lowest level since 1982. It’s also vital that limits on tax free wrappers, like Stocks and Shares ISAs, are maintained to keep retail investors enthused about investing, and ensure funding is available for growing UK businesses. Reducing stamp duty on UK share transactions should also be considered, to stop investment in British-based companies being taxed more heavily than overseas firms.
While the National Wealth Fund has lofty ambitions to attract inward investment from the big beasts of global finance, opportunities need to be created for armies of smaller retail investors, who together would be a significant force for good in helping boost growth. Opportunities to invest in growth companies are few and far between with retail investors left out of most the stock market flotations, so providing them an ‘in’ to the global wealth fund would be a hugely welcome move.”
