Chancellor Jeremy Hunt is due to unveil the spring budget later today. Among other rumours, Hunt looks set to cut 2% from national insurance contributions, while elements of the Conservative party would like to see an income tax cut.
But what are the priorities for the investment industry? Portfolio Adviser has compiled a wish list of industry commentators’ priorities ahead of the big reveal.
Pension funds
Darius McDermott, Chelsea Financial Services managing director, has called on Hunt to mandate pension funds to invest more of members’ savings in UK-listed companies.
Given the backdrop of continued diminishing support for UK markets by Britain’s pension money managers, McDermott said: “UK pension funds exposure to British equities has been dramatically dwindling over the past 25 years. Furthermore, the Investment Association figures show that UK equity sectors have been in redemption for many years.
“The sad reality is the marginal buyer of UK equities has gone since the Brexit vote. We now contribute far less to the UK economy than international counterparts do to their own domestic markets. The chancellor now needs to encourage pension funds to deploy more of their capital in a way that boosts Britain’s economy and its markets – getting pension funds to allocate more capital to British companies is a great way to start.”
McDermott added that while US stockmarkets power on, the “unloved” UK stockmarket continues to lag. Microsoft and Apple are now both worth more than the entire FTSE 100.
He added: “Institutions managing retirement money have been moving their investments away from UK stocks for decades. This has hurt the UK’s stockmarket because more money is leaving than coming in. We’d like pension managers to put more money into UK companies and tell us more about where they’re investing all over the world.”
British ISA
Leading up to the spring budget, Premier Miton Investors has been vocal in calling for a ‘Great British ISA’ to be introduced.
Premier Miton wants Hunt to introduce the GB Stocks and Shares ISA – which would target investment in UK-listed equities and UK-focused bonds – and the GB Cash ISA, which would invest in cash deposits.
The firm argues that the move would specifically direct investment into UK listed companies, providing an “attractive listing environment” for UK startups and companies to stay and grow here.
See also: Platforms call for UK government to resist launching ‘retrograde’ British ISAs
Mike O’Shea, chief executive officer of Premier Miton, said: “Ensuring companies have access to the capital they need will encourage them to scale up and list here in the UK. This will mean that companies’ headquarters, and all the associated high-paying roles, tax receipts and international prestige, remain here in the UK.
“At Premier Miton Investors, we think more British savings should be going into British companies. And British tax breaks should benefit the widest cross section of the British economy. We know firms from across our industry agree and a wide range of UK market participants want change. Through the GB ISA, savers who want to benefit from a tax break from the UK government, will directly support the UK economy in the process.
“Investor choice is crucial, and our proposal for the GB ISA would still allow investors to access other listed equity markets if they need to. They can also invest through the GB ISA in listed investment trusts that may hold overseas assets, but crucially these trusts are listed here in the UK thereby supporting a vibrant UK funds industry.
“Today, we call on the chancellor to introduce the GB ISA in the budget this week, to fully unlock the potential of the City. This would not only scale up smaller private companies, but provide those same companies an attractive listing environment to stay and grow here in the UK, and send a positive signal to global investors about UK plc.”
The industry seems split on the issue, however, with several platforms urging the government to resist launching ‘retrograde’ British ISAs.
ISA Simplification
Short of a Great British ISA, simplification to ISAs in general could be on the agenda. James Carter, head of platform policy at Fidelity International, said: “Most people will find themselves managing a series of evolving financial objectives over time. However, we know that many find it difficult to identify which products best suit their saving needs. This complexity destroys confidence, leaving many individuals missing out on vital opportunities to strengthen both their short and long-term financial position.
“Further proliferation of ISA types can create confusion for investors, but also can limit the economies of scale that providers can offer. This can stifle innovation and worse, can raise costs for end investors. Simplification and certainty of tax treatment can allow both savers and companies to better plan and manage the products.
“There is an opportunity to simplify and shift a cash savings culture into long-term investing. This could be achieved by combining Stocks and Shares and Cash ISA products as well as improving the ease of transfers. Short term needs are well served, but it leads to consumers holding large cash balances for too long, missing out on higher investment returns.”
See also: Interactive Investor: Growth funds favoured in February led by Jupiter India
Stamp duty
Interactive Investor has lobbied for the removal of stamp duty on trading UK shares. Retail investors are already heavily invested in UK Plc, with II reporting that 80% of directly held equities across its platform are invested in UK-listed equities.
The platform argues that stamp duty on UK shares penalises investors who buy British, but the fundamental issue with stamp duty comes back to liquidity. This is especially relevant as the UK grapples to maintain its competitiveness as a place for companies to not only list, but also to scale.
II said that stamp duty on UK shares is ‘economically destructive’. It constricts liquidity in the marketplace, leads to lower economic growth, and incentivises flow to other markets and products.
Richard Wilson, II chief executive, said: “Liquidity in the markets is like our oxygen. The markets need it to breathe. By taxing transactions, we choke the air supply and make the markets weak, and then one by one the players leave.
“We then scratch our heads in confusion, presuming their leaving is because other markets have somehow got more depth and scale, so we add yet more bad incentives to stem the tide, like dual share classes, but actually compound the problem. It must end.
“Stop the Stamp now, give us back our level playing field, and let the London financial markets do what they do best: to compete, to innovate, to win.”
Increase CGT Allowance
Another area the government may focus on is the capital gains tax. Laith Khalaf, head of investment analysis at AJ Bell, says that instead of cutting the annual CGT allowance from £12,300 to £3,000, the chancellor could instead have chosen to raise revenue by increasing CGT rates in line with income tax rates.
“That would have shifted the burden onto those with larger gains, while allowing everyone a modest sum of £12,300 of gains they can make each year without facing capital gains tax. Basic and higher rate taxpayers with annual gains under £21,600 would have been better off under this arrangement, as would top rate taxpayers with annual gains under £19,740.
“For those in retirement looking to sell investments to boost their retirement income, the difference between taking £3,000 a year and £12,300 a year without worrying about tax is substantial. A new survey of AJ Bell’s investors revealed that 68% would support an increase in the CGT rate if it meant a return of the £12,300 allowance.
“Only 13% preferred the current plan of keeping rates where they are and cutting the threshold to £3,000. Given where the public finances are heading, it wouldn’t be entirely surprising to find capital gains tax rates increased in future in any case, with the reduced allowance then providing little protection for UK investors. We might end up with the worst of both worlds.”
See also: What will the capital gains tax changes mean for MPS investors?
