Andrew Van Sickle editor@moneyweek.com
“Great Budgets change history,” said chancellor Jeremy Hunt before his speech. But how many can you remember? The ones that stick in the mind tend to be the ones that went wrong; Kwasi Kwarteng’s inadvertent bombshell, for instance, or George Osborne’s omnishambles. One can make a case for Nigel Lawson’s cost-cutting Budget in 1988 being truly striking, but all the sound and fury generally signifies little (see page 12).
That is partly because the contents are constantly leaked beforehand these days, so the element of surprise has dwindled. Witness the news of a consultation on a British Isa, an attempt to boost inflows into the London market, which is withering on the vine (page 4). The more money that flows in, the more companies will be able to invest, which bodes well for our chronic productivity problem (see page 28). A healthy equity market is a key prerequisite for strong long-term growth.
A minuscule move
It seems unlikely, however, that a British Isa will move the needle much. Most investors – in any market – tend to skew towards their home stocks in any case. In addition, most Isa investors don’t use their full £20,000 allowance. If they did, and then went and bought the full £5,000 of UK-listed equities on top of their £20,000, the overall sum would be the equivalent of 0.2% of the UK market’s aggregate value, notes AJ Bell’s Russ Mould.
A more fundamental problem is that only around 13.5% of British shares are held by individuals. Pension funds are barely invested in British equities. Simon French of Panmure Gordon pointed out on X last week that “every major pension industry in the developed world is hugely overweight its domestic equity market, by an average of 2,089%. Britain is 41% underweight its own”.
Blame rules that govern how defined-benefit pension schemes calculate their funding position. These prompted the schemes – which used to be reliable long-term investors in British shares – to invest more of their assets in bonds. Their reduced exposure to stocks is increasingly overseas, understandable given how badly UK markets have performed. Definedcontribution schemes also display an overseas bias.
There is a chicken-and-egg element to this problem, but ultimately the UK market must be made better to persuade – not force – investors to come back. Creating a British Isa or ditching stamp duty matters less than reversing the steady hollowi
