Savers are sitting on a gold mine that can increase their income over the long term, help businesses grow and support the economy.
If Britons invested just a quarter of their excess money in stocks and funds, it could pump £740bn into the economy. Instead, they keep most of their money in banks or savings accounts, where they steadily lose value over time.
Around 16 million people in the country have more than £10,000 of free cash, and many have much more. But most stay away from stocks.
In the past two decades, the number of households that own stocks and shares directly has fallen from 23 to 11 percent.
Charlie Walker, deputy chief executive of the London Stock Exchange, says the feedback has been widespread, adding: “It is important that we build the share of the UK population in the UK economy and ensure they benefit from its growth.”
Walker’s call for change comes ahead of Wednesday’s Autumn Statement, where the Chancellor is expected to unveil initiatives around savings and investments.
Many say change is overdue. The decline in share ownership represents a radical shift from what happened in 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 privatization, and others, saw a wave of shareholders enter the UK stock market.
Today, much of this legacy has been lost, to the detriment of individuals, businesses and the wider economy.
Households lose out because even the best savings accounts tend to offer interest rates below inflation, so the value of cash diminishes over time.
By contrast, stocks yield higher returns over the long term than almost any other form of investment, so money invested today should be worth much more in the future.
Companies lose because they are starved of funds that would allow them to expand, develop and create more job opportunities on their land. Instead, many look abroad for financing or are bought out by foreign companies. In the past five years alone, more than 400 companies – collectively worth £425bn – have been the subject of takeover bids from overseas predators, allowing offshore investors to reap the benefits of local companies.
The economy also loses, as larger companies pay more taxes, employ more people, invest more money in research and development, and work with more local companies. “Expanding retail share ownership will be a win-win in the UK. It will boost trading in company shares, spread wealth and help consumers feel truly invested in the companies that drive our economy,” says James Ashton, CEO of the Quoted Companies Alliance.
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How can this money help?
The trend away from stocks is particularly frustrating, as the UK boasts the largest financial market in Europe, while London’s financial sector ranks on a par with New York in terms of global appeal and experience. Yet nearly 60 percent of Americans own stocks directly.
The global financial crisis, years of austerity, and recent accelerating inflation have not helped. But Americans have endured similar challenges and remain committed to the stock markets. Most experts believe Britons’ aversion to stocks goes beyond difficult economic conditions, blaming red tape, fear and regulation.
Individual savings accounts (Isas) and stamp duty attract criticism over calls for reform.
ISAs allow savers to invest in stocks without paying tax on the income they earn from dividends or the gains they make when share prices rise. This benefit is paid for by UK taxpayers, but investors can buy shares in foreign companies and still get the benefit.
Around £450bn is invested in stocks and shares, but less than 15 per cent of that is invested in UK companies. says William Wright, founder of think tank New Financial, whose report – Expanding Retail Participation in Stock Markets – highlights the £740bn prize that could be up for UK companies.
Personal equity plans (PEPS), which preceded Isas, forced investors to buy UK shares, a commitment many believe should be reintroduced, Wright says. “Anyone who buys shares or shares in an Isa must invest a third or half of their money in UK companies to get the tax concessions,” he adds.
Current regulations also mean that when individuals buy shares in UK companies they pay a stamp duty of 0.5 per cent, but when they buy shares abroad there is no duty.
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