Retail Therapy

• Britons like to save – but too many of us are saving in cash, despite the more attractive returns which might be available through investing in shares
• There is £1.8 trillion of cash in savings accounts – roughly equivalent to the entire market capitalisation of the FTSE 100 – and approximately £300m in National Savings and Investments accounts. The value of those savings is currently being hammered by inflation
• The UK is behind other nations in terms of retail investing. Retail investors control just 21% of UK assets under management, the lowest percentage in Europe. The percentage of UK equities owned by UK residents has been falling consistently for decades
• Far more people take out Cash ISAs than Stocks and Shares ISAs, especially those on lower incomes – exacerbating wealth divisions in the UK
• A major new report for the Centre for Policy Studies, endorsed by City Minister Andrew Griffith MP, calls for a new Retail Investment Strategy and a range of measures, akin to the ‘Tell Sid’ campaign of the 1980s, to move savings from cash into shares

The UK’s overly cautious attitude to risk and high regulatory barriers to investing are putting millions of people off becoming shareholders. This means those who save in cash are seeing its value eroded thanks to inflation, falling ever further behind the more-affluent and better-advised.

‘Retail Therapy’, written by CPS Research Fellow and former Government adviser Nick King and endorsed by City Minister Andrew Griffith MP, calls for a revolution in share ownership. It highlights the fact that there are 9.7 million people with investable assets of more than £10,000 held in cash, of whom more than four million want to take at least some form of investment risk. Yet at the moment, buying shares is treated by the regulators as a more dangerous pursuit than gambling – and high street banks are discouraged even from suggesting that their customers might benefit from moving their savings into shares, or offering easy ways to do this.

Successive governments have done far too little to address this, even ignoring opportunities like the selling off of the national stake in NatWest, which could have created a whole new generation of UK shareholders, but which were instead sold off to institutional investors.

This is just one example of a wider shift within the UK to prioritise institutional investors. As a result, retail investors have the lowest percentage of assets under management of any European nation – 21% compared to 28% in France, 30% in Germany, 34% in Italy and 84% in Spain. The UK also has a far lower percentage of household financial assets in listed shares. Small wonder given that the percentage of UK equities owned by UK residents has fallen consistently in the last three decades and now stands at 12% compared to more than 50% in the 1960s.

Under normal circumstances, this neglect of the stock market would be bad for the UK, its citizens and its growth prospects. But in the current inflationary environment, the huge amount of savings left in cash is positively disastrous.

Even among savers, there were eight million Cash ISAs taken out in 2020/1 compared to just 3.5 million Stocks and Shares ISAs. In just April 2023, £11 billion more was invested into Cash ISAs. Taken together, Cash ISAs now hold almost £300 billion in savings.

The paper, supported by PIMFA, argues that changes to red tape, an improved attitude to risk, and increased public awareness of the wealth-creating opportunities of investing, could help the UK unlock capital and boost its appeal to businesses. As Rishi Sunak wrote in ‘A New Era for Retail Bonds’, his 2017 report for the CPS, the failure of Britons to invest in the stock market represents ‘a vast store of underworked capital’.

The report therefore calls for politicians to once again consider individual share ownership to be a political priority, alongside home ownership, as was the case in the 1980s. In particular, it recommends:

• A new Retail Investment Strategy with the explicit aim of creating more retail investors, putting them on an equal footing with institutional investors
• A public awareness campaign along the lines of the 1980s ‘Tell Sid’ campaign, supported by the government, regulators, and the London Stock Exchange
• Ensuring the odds aren’t unfairly stacked against retail investors. A proportion of new equity offered through IPOs should always be available to retail investors
• Rethinking disclaimers around retail investing to take a more realistic, positive attitude towards risk, with personal responsibility in investing embraced
• Merging Cash ISAs and Stocks and Shares ISAs into a single product. Savers could maintain savings in cash but would be made more aware of the potential long-run returns of stocks and shares

Nick King - Wednesday, 5th July, 2023