Andy Bell is the founder and former chief executive of AJ Bell.
The Chancellor will stride into Mansion House this evening with the admirable intention of saving the UK stock market.
Let’s hope she turns up wielding carrots and not sticks. Because when it comes to influencing the behaviour of investors, it’s about offering incentives, removing barriers and trusting people to do something sensible with their money.
Not banging them over the head Punch and Judy style.
Lazy thinking suggests it is overregulation that is killing our stock market. That is wrong. The problem is demand-side. Investors just don’t fancy UK equities anymore.
They’d rather sit in cash or chase the S&P than punt on a lacklustre UK fund limping along in the slow lane.
Now, I get it – carrots cost money. But here’s a mad idea: speculate to accumulate. A short term hit to the tax take can return higher tax revenues in the long run.
U-turn: Reeves will not cut the cash Isa limit but wants investors to back the UK
Scrap stamp duty on UK shares
Scrapping stamp duty on UK shares is one option. Attracting more money to the UK stock market will help drive up the price of UK shares which in turn will lead to greater capital gains tax receipts.
Also, designing the tax system is not just about raising money, but influencing and aligning behaviours.
Why tax an investment in AstraZeneca more than Apple? Or Marks & Spencer more than Microsoft? Give UK plc a boost by ending the tax penalty on investing in UK shares.
If the Chancellor is feeling really brave, she could go the whole hog and exempt UK shares (and funds that invest in UK shares) from inheritance tax and watch the money flood back into the UK market.
Farmers may have something to say about a reduction to inheritance tax but as the old adage goes, If I was trying to get there, I wouldn’t be starting from here.
Simplify Isas
Here’s another idea. Simplify the Isa system. We’ve been banging the same drum for years now. The Isa is a great brand, built on trust.
But governments can’t resist tinkering. New policy idea; new Isa. Junior Isa. Lifetime Isa. Help-to-buy Isa. Innovative Finance Isa.
Under the last government we almost ended up with a fundamentally flawed ‘Great British’ ISA. As if slapping a Union Jack on complexity somehow makes it patriotic.
Retail investors are huge supporters of UK companies. So government is rightly looking at the plus-£300billion quietly floundering in cash Isas and asking: can that put some life back into UK plc?
Objections from this paper and others like AJ Bell seem to have persuaded the chancellor to press pause on plans to cut the cash Isa allowance, at least for now.
Cutting the cash Isa allowance would have worked as about as well as selling sun loungers in Manchester. Savers wouldn’t have shifted behaviour.
They would have kept their existing Isa cash where it was and hoarded new cash elsewhere.
Cue another complex layer of rules to prevent money being smuggled into cash Isas via stocks and shares Isas.
Hopefully this idea will stay in the ‘mad idea’ graveyard alongside the GB Isa.
As for this bizarre idea of mandating UK investment allocations within Isas – good luck.
Policing that would require the kind of state surveillance last seen in East Germany.
And anyway, UK investors already show a strong home bias. On AJ Bell’s platform, half of Isa assets are in UK shares. Give us a quid, we’ll put 50p in Blighty.
Rachel Reeves must go back to the drawing board on a plan to inspire the cash saving faithful to give UK plc a go.
Let’s at least take a tentative step down Isa simplification boulevard: by merging cash Isas and stocks & shares Isas into one.
Friction between the world of saving and investing is a major barrier. Instead, let’s have one tax-advantaged savings vehicle called, you guessed it, an Isa and leave people to choose how they want to save or invest.
We’re asking savers who want to be investors to navigate the bureaucratic equivalent of a hedge maze blindfolded, as they transfer from their cash Isa to a stocks and shares Isa. Wading through treacle in a woollen onesie is the easy option.
Ditch the duct tape and deliver something bold, simple and effective. Because if this government insists on using sticks instead of carrots, the only thing they’ll be beating is a dead market.
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This article was originally published by a www.dailymail.co.uk . Read the Original article here. .