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Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Investors factored in Rachel Reeves becoming chancellor long before the Labour party won the election this month. Few would envy the challenges she has inherited. A range of sectors are urgently pressing for greater funding — health, social care, defence and prisons among them — with no obvious source of where the money will come from . . . save for the party’s much relied upon commitment to economic growth.
It’s a pledge that investors will applaud. But how will it be achieved? It is all very well, for example, easing planning restrictions for housebuilding, but have we the bricklayers and other tradespeople to build the homes, particularly in the wake of Brexit?
What is certain is that we need to foster a culture and climate of business growth and greater risk-taking in this country. We have many great businesses and investment opportunities, but a stock market that is severely undervalued — just witness the predatorial activity by both private equity and overseas buyers in recent months.
In my view, nothing would boost the UK market more than a significant increase in domestic investment from pension funds from their present derisory levels. I accept that pension fund trustees would argue schemes exist primarily to serve their members and not the financial markets, but only a small percentage increase would make a significant difference to UK markets.
But there are so many more things we can do to boost the UK’s investment culture. Here are three ideas for the new chancellor.
First, financial education in our schools is abysmal. Some months ago, I and a number of Tory peers urged former chancellor Jeremy Hunt to “gift”, say, £5,000 of the government’s NatWest holding to each state secondary school to be held for the long term. The idea is to empower senior pupils to decide how the likely £350-a-year dividend should be spent. We believe this could be transformational in beginning to make young people aware of the stock market, banks, dividends and the like, at a very modest cost to the Exchequer that we estimate to be £20mn.
It felt as if we were making considerable progress. We had meetings with the economic secretary to the Treasury and the minister for schools. Unfortunately, the election then intervened. I know not whether it would have come to pass but I certainly intend to pursue it with Reeves. We should all be worried and ashamed that far more young people speculate in cryptocurrencies than traditionally invest.
Second, the total failure of television to cover the stock market and UK investment opportunities is a national tragedy. A combination of producers’ disinterest, coupled with concern that they may fall foul of the Financial Conduct Authority and other regulatory bodies, seems to lie at the heart of this. I have raised this situation with successive Tory City ministers, but just got a shrugging of shoulders. Will Labour ministers be any more interested and proactive when it comes to communicating the stock market to the mainstream?
Third, the growth in Isa investments in recent years is to be welcomed, but could we not make it more supportive of our UK market? While I supported the thinking behind Hunt’s £5,000 UK Equity Isa, I believe it was something of a damp squib as that amount is too small to be significant and it would be administratively cumbersome in that investors would almost certainly have to take out a separate Isa.
I favour a much more radical, potentially controversial approach. I would restrict all future new Isas — and any new monies put into existing Isas — to be confined to UK-quoted companies. I fail to see why we should give tax breaks to people who are, in effect, investing overseas. However, I would not expect existing Isa holders to divest their overseas stocks; this would be retrospectively unfair and administratively messy. I proffer that these already committed savers would not be deterred by such an approach.
Podcast: How Isa millionaire Lord John Lee chooses stocks
Lord Lee has a clear strategy based around choosing UK small-cap companies that pay dividends. He tells presenter Claer Barrett about his strategy and how he chooses stocks. Listen here
And while I’m at it, I find it depressing and infuriating that, in so many Plcs where I am a shareholder, non-executive directors have tiny, often zero, shareholdings in the companies. These days such directors are paid quite handsomely and could easily afford to build decent shareholdings, thus aligning themselves with shareholders.
Some put forward the argument that having no shares makes them more independent. I do not know who they think they are representing — of course they are there to provide good governance, but fundamentally they represent shareholders and if they are not prepared to invest and demonstrate confidence in the company, frankly, they should not be there. My suggestion is, by the second year of board membership, non-executive directors should have a shareholding equating to at least 25 per cent of their annual fee.
Lord Lee of Trafford is an active private investor
