UK currently has the lowest level of retail investment among G7 countries
As the UK’s Labour party deals with its fair share of crises this summer, the chancellor Rachel Reeves has outlined her intention to promote long-term equity investing for retail investors.
Speaking in London’s Mansion House earlier this week, Reeves said she hopes the so-called ‘Leeds’ reforms would cut red tape and improve access to the capital markets for normal savers.
The UK currently has the lowest level of retail investment among G7 countries, the government claims in a text issued alongside Reeve’s pronouncement, which means ‘savers are not getting the best bang for their buck and UK businesses are starved of an important source of capital’.
But whether the reforms will work to promote equities to a disengaged UK public remains to be seen.
For Reeves, it’s all a matter of perception. In her speech on Monday she said: ‘For too long, we have presented investment in too negative a light, quick to warn people of the risks without giving proper weight to the benefits.’ She later said that regulation was acting as a ‘boot on the neck of business’.
It’s true that the UK’s regulatory environment – as helmed by the Financial Conduct Authority and the Prudential Regulation Authority – is focused on keeping consumers safe from investment scams, particularly in the light of high-profile failures such as those seen when Neil Woodford’s flagship investment fund, the Woodford Equity Income Fund, was closed down in 2019 over allegations its holdings were not properly supervised.
Under the reforms, retail investors will be given access to long-term asset funds (LTAFs) through the stocks and shares Individual Savings Account wrapper, enabling them to invest in the private markets through the tax-saving vehicles for the first time. LTAFs are open-ended funds that have been designed to provide easier retail access to long-term private markets investments, such as private credit.
The investment industry has had a mixed reaction. Some, such as the Investment Association trade body, are ‘extremely pleased’ at the added access to LTAFs. Others, such as Michael Aldridge, president of Accelex, say the reforms may be a ‘double-edged sword’ and expose savers to a relatively risky private market.
‘If the government wants to boost retail investment into private markets, it must take strong measures to improve clarity over private assets’ valuations and performance,’ he adds.
There are other points of contention, namely proposed changes to ringfencing rules that keep banks’ retail activities separated from the rest of their operations.
The UK capital markets certainly need something[GR1] to kick them into life: after all, despite the FTSE 100 index breaking its 9,000-point milestone this week, its constituents are still worth less than a single US listed firm: the $4 trn titan Nvidia.
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