Governance, sadly, never does mean repealing past mistakes
Much pondering going on over how to revive the London stock markets. Perhaps we should force public pensions funds to buy UK shares? Possibly insist that to gain tax relief savings cannot be in cash, only in shares?
The chancellor has signalled that she could reform the savings regime and limit the amount that people can put in cash Isas amid calls from investment firms for a shake-up to boost Britain’s faltering stock market.
Rachel Reeves said on Thursday that she wanted to get the “balance right” on individual savings accounts (Isas). These are popular tax-free savings products that allow investors to put away £20,000 a year either as cash or to invest, as part of efforts to encourage more of the public to invest and help to turbocharge the UK’s lacklustre economic growth.
More money into the stock market. Well, OK, it’s an ambition. What matters far more for economic growth is more investment into start ups but still. Take that ambition as being just that, the ambition.
One of the things we complain bitterly about is that governance, government, never does seem to accept the basic lesson of markets. That - in a truly basic sense - is try near everything then do more of what works, less of what doesn’t. Within that very base logic is the idea that if you’ve made a mistake then don’t do that any more. It might well be necessary to do that to find out that it’s a mistake - tracking second through nth order effects in something as complex as an economy is not easy after all - but once we have found out then we should now accept that we shouldn’t be doing that. And that’s the bit government doesn’t do.
“Oh well, that was a mistake, let’s stop doing that” is something government should do more of that is.
As here. So, the ambition is to get more of Britain’s savings - pensions fund, tax protected individual savings - into shares on the London market. So, why isn’t there enough right now? What changed from when we did have enough to now when we don’t? Pensions funds used to gain the pension tax credit. Corporation tax is, after all, really just an advance collection of the income tax due on dividends. So, if there are tax privileged pensions funds then shouldn’t - maybe? - they get back the corporation tax that has been paid on the dividends they receive?
Largely they did. Now they don’t. The return, for a pension fund, on holding British shares has gone down. Pensions funds now hold fewer British shares, a lesser portion of all pensions funds is now in British shares. Because, largely, Brown, G, insisted on having more tax, more tax right now.
We now think that was a mistake. Or, at least, we think that the fall in pensions funds investing in British shares is a mistake. So, the correct solution is to reverse that mistake. Reinstate the pensions tax credit*. What’s the one thing no one is discussing? Quite.
Boo boos happen because this is all a human enterprise. But being willing to reverse rather than build upon them would make government rather better.
Tim Worstall
*We’re willing to be corrected upon the exact name there