Jeremy Hunt’s Spring Budget should get Britain investing again

The Spring Budget presents the Chancellor with another opportunity to shift the 20-point poll deficit currently facing the Conservative Party. Clarity on the sale of NatWest shares to retail consumers, and further pension reform would be welcome, but upgrading Lifetime Individual Savings Accounts risks juicing housing demand, when we need more supply.

Top of the Chancellor’s priorities will be measures to protect London’s place as Europe’s leading financial market. Nearly 2.5 million people in the UK work in finance and related professional services. But our status as a premier destination to raise capital is at risk.

Last year, British chip designer ARM decided to list its highly lucrative shares in the US, despite a personal plea from the Prime Minister that they list here. Since then, big names like TUI (the holiday provider), CRH (who sell over $32 billion worth of building materials every year), and Flutter (the firm behind SkyBet, Paddy Power, and Betfair), have either shunned a London listing or announced plans to move their listings to the States.

 The Chancellor should not force British companies to list on a British exchange, as some other countries do. Openness is key to London’s position as a financial hub. He can, however, keep fixing the regulatory barriers putting firms off a UK listing. And he can generate some buzz and excitement in UK markets by putting more meat on the bones of the upcoming NatWest share sale.

The government’s ownership of NatWest has its roots in the 2008 financial crisis, when the government bailed out the bank and became a majority shareholder. The government still owns 35% of the bank and recently announced its intention to sell its shares to ordinary individuals at a discounted price.

The Chancellor must seize this opportunity to get retail investors back in the market. Encouraging individuals to own shares is a win for all involved. For the individual, share ownership often outperforms ordinary saving. Over the last 5 years, the FTSE100 has averaged a yearly 5.7% return to its investors. Contrast that with savings, where easy-access rates have recently averaged 3.17%. Over the long term, this difference adds up.

Widespread share ownership is also good for businesses. New machinery, new products, and expansion to new markets are all made possible by investors buying shares. Investors benefit when that investment leads to dividends, and the economy benefits when that investment leads to growth.

 So, supporting the public to participate in financial markets should be a priority. It’s good for individuals, businesses, and the economy at large. Other measures to support the London market could include a British ISA, enabling individuals to buy shares in UK-listed firms tax-free. Japan and Italy have similar schemes, and a British ISA is cheaper and more likely than scrapping stamp duty on shares altogether, which some have called for.

 Similarly, the Chancellor will be keen to provide an update on pension reform, which is key to supporting the ageing population up and down the country. At the Autumn Statement last year, the government announced plans to open the Pension Protection Fund to defined benefit schemes, of which there are over 27,000 in the UK. 90% of these schemes have fewer than 12 members, and their small size means they can’t afford the investment managers they need to generate better returns for individuals, by investing in infrastructure, growth capital or public equities. This is exactly the kind of investment we need to generate economic growth.

 An update on the Mansion House Reforms would also be welcome. These Reforms encouraged pension funds to invest 5% of their funds in high-growth companies, unlocking £75 billion to grow the economy and boosting the average pension by £1,000. The Chancellor made the right call in encouraging, but not forcing, pension funds to allocate more money to early-stage businesses, many of which are in the tech sector. Although the Government can advise, and convene, individual funds must retain the freedom to decide what is best for their members.

 The Chancellor is likely to try and woo first-time homebuyers by amending the rules around Lifetime Individual Savings Accounts. The Chancellor could cut the penalty rate, applied when savers withdraw money from their accounts, from 25 to 20 per cent, and lift the maximum value of properties the LISA can be used to purchase from £450,000 to £500,000.

Measures to help homebuyers are usually welcome, but the LISA does nothing to increase supply. Recent research has found that the UK is missing 4 million homes, and this can only be tackled by serious planning reform.

 Upgrades to the LISA risk juicing demand for housing, at a time when the UK needs more supply. Housing is too important for us to paper over the cracks.

A more flexible planning system would allow the UK to build the homes we need, while preserving access to green spaces. Such reform would get young professionals out of their parents’ homes and into our most productive cities, growing the economy by up to £168 bn a year.

Widespread housebuilding will get the economy growing again, while widespread retail share ownership allows the public to benefit from this growth. With an election expected in late 2024, and the Tories 20 points behind in the polls, however, these may not be enough to fully turn the tide.

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