Patrick Jenkins argues that the cash version of the UK’s individual savings account be scrapped or reduced to £5,000 and an additional £20,000 per annum permitted for stocks-and-shares Isas to grow the UK economy (Business Insight, February 11).
But if that’s the purpose, the idea is flawed beyond remedy. First, many investors will not want equity risk and the overall level of savings will fall. Second, unless there are complicated rules, most new equity investments will have a small allocation to the UK. Third, even if these complicated rules were incorporated, buying shares in the secondary market, directly or through funds, is unlikely to benefit growth much (although it will be very nice for asset managers and financial intermediaries). Fourth, banks actually do lend money to UK growth enterprises, so cash Isa investors’ money is leveraged many times over, thanks to fractional reserve banking, to the benefit of the UK economy. Finally, there are already many tax-privileged ways of stimulating investment in UK growth companies such as enterprise investment schemes, the junior AIM market, and venture capital trusts.
One thing that is definitely true is that more money invested in equities rather than cash over the long-term is very likely to be better for consumers. The FT is doing more good with its efforts to build financial literacy than it is with this idea.
Daniel Godfrey
Former Chief Executive, The Investment Association, London N5, UK