The Bank of England has reported this morning that:
Household deposits with banks and building societies rose by £5.3 billion in May. This was driven by households depositing an additional £4.2 billion into ISAs, following a record net inflow of £12.3 billion in April (the series began in 1999). These were partly offset by net withdrawals of interest-bearing sight, interest-bearing time and non-interest bearing sight deposits of £1.7 billion, £0.5 billion and £0.3 billion respectively (Chart 3).
The point is important and is borne out by the chart: net new savings in the UK economy right now are significant. After a period of heavy reallocation of funds from late 2022 until more recently, the normal pattern of regular heavy saving - much of it into ISAs - has been resumed. There is a wall of money seeking use in the UK economy.
This is a theme that Colin Hines and I, as Finance for the Future, have been making for some time. Colin had this letter in the new Statesman last week on this theme:
Mariana Mazzucato's detailed alternatives to the growth-before-investment mantra and Paul Collier's demand that the next government takes back control of the Treasury after decades of its misrule provides solid underpinning for a progressive Labour government.
This approach could be part-funded by drawing on the proposals of the tax expert Richard Murphy detailed in his Taxing Wealth report. It explains how up to £90bn a year could be raised by increasing tax on the income from wealth. Another huge investment generator would be to ensure all new ISA funds and 25 per cent of new pension contributions were invested in social and green infrastructure. Up to £100bn of funds might eventually be made available for that purpose a year.
This could enable Labour to begin embarking on a first “hundred days of hope”, while increasing business opportunities and providing secure employment across the country.
Colin Hines, Twickenham
Labour should be taking note, rather than talking to foreign capital, which it is reported to be doing. We do not need private equity funds or the likes of Blackstone funding the UK economy. What we need to do is provide the people of the UK with the chance to save for their own future prosperity - and survival.
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The problem with this idea is that the savers might start demanding value for money. And their idea of value might turn out to be such things as a clean environment, better care for the sick and elderly and less pointless drudgery in the service of the super-rich.
🙂
I don’t want my ISA to be in the hands of the Labour Party!!! nor will 99% of other ISA owners..
I am not trying to force anyone to save in any way. They are free to save exactly as they
I am suggesting that the state has the right to attach conditions to tax relief if you want it.
Why do you think you are entitled to relief without conditions attached?
Then don’t have an ISA, Franco. There will be those such as you who are ideologically opposed to investment in such things as a green new deal but I seriously doubt it will be anything like 99% of ISA owners. There will also be those who welcome the chance to invest in the wellbeing of the country. I suspect, however, that the main attraction of an ISA for the majority will always be tax relief.
However, you and I do agree on one thing: namely, when making an investment it is wise to consider the ethical and political consequences of what one is investing in. I, for instance, have a small stake in a French mobile phone company because it aims to respect worker’s rights, use renewable resources and is developing an operating system designed to protect user’s privacy even when using such things as interactive mapping software. These are all things I believe are worth while. Similarly I would welcome the rather tiny ISA I have to be invested in green projects. You have different priorities but I don’t see how Richard’s proposals would stop you investing in whatever it is you think is worth while.
How are you sure virtually all ISA holders are of the same mind?? BTW…Given Richard’s research showing that overall Tory governments both borrow more and repay less debt than labour ones you might be misplacing your confidence
Doesnt stop most French people having various French Livret savings accounts held at private banks that are used by the government to help finance social housing, urban redevelopment, energy transition, social economy,.. . Some are tax free as well as earning a modest interest rate but have small maximum limits ~22,000 euros (x 50 million account holders) = 1,100,000,000,000 million euros = 1,1 UK billion
Livret A
https://www.economie.gouv.fr/facileco/livret-a-fonds-destination
Livret de développement durable et solidaire (LDDS)
https://www.economie.gouv.fr/particuliers/livret-developpement-durable-et-solidaire-ldds
A model to study and replicate
You talk about “ensuring” 25% of all new ISA and pension fund contributions be invested in green or social infrastructure.
This sounds like a euphemism for “forcing” but leaving that aside, how does this work in practice?
Most infrastructure investments are highly illiquid, so how would a pensioner or ISA investor be able to sell this investment when required?
Also, a lot of these investments don’t naturally generate an income stream. So how would investors get a dividend or coupon from much of this investment?
Or are you just saying that you want to force people to buy government bonds?
First, net outflows from ISAs very rarely happen – as all in finance know
Second, all of banking is about borrowing short and lending long – there is nothing new in this
Third, a national invetsment bank can managte this risk
Fourth, the state would guaranteee repaytment (it already does for many ISA accouints, remember)
Fifth, what do you mean housing, transport, energy and so on make no returns?
And last, are you not aware that the state already pays interest?
Your comments are pure drivel
“First, net outflows from ISAs very rarely happen – as all in finance know”
“Investment Association data shows that in 2022/23 there was a net outflow from ISAs of £2,339 million, a trend that has grown since, with only April 2023 seeing a net inflow.” Source – Chase deVere. April 2024. They are in finance. So I guess they know.
So as recently as 2022-23 over £2bn more was withdrawn than invested. You would have had minus £2bn to invest not the £100bn you are touting. Since then only one month has seen a net inflow. What’s your plan B?
That is not what national sttistics show
I’ll stick with the HMRC sourced data on this one
1. The key word here is “net”. Doesn’t explain how people will sell illiquid holdings.
2. No, but these again are illiquid investments.
3. How exactly? It will have the same risks as every other infrastructure investment.
4. If the state guarantees them, they would be identical to Gilts. So at which point you are just forcing people to buy more Gilts. Which aren’t typically a great investment. And are already free of capital gains tax.
5. Some infrastructure has a direct income stream associated with it. But reading more of your work you also mention schools, hospitals and social housing etc. which don’t. So either this is just forcing people to buy more Gilts or something similar to PFI.
And I am well aware the state pays interest. I’m also aware that government bonds have been basically the worst performing asset over the last 20 years, but you seem keen to force people to buy them. Weren’t you at one time saying people should be buying Gilts at 1%? How much money have people lost if they followed your advice?
You clearly have read nothing I have written on this issueand are clueless about finance, but are very familar with prejudice and self-interest
Goodbye
In response to Terry; he misses the point. People invest in gilts as a consequence of safe asset theory. ROC is not the critical measure. Security is. Nobody can match the security of the sovereign issuer in that currency; and that is what matters to those in that jurisdiction; and that is what matters to the wealthy, who are more closely tied to safe asset theory than the poor; who have no wealth to secure. Terry, you are a sophisticated.
A sophist? Maybe?
That read “Terry, you are a sophist”, before the literally illiterate autocorrect idiocy jumped in to demonstrate how badly programmed rubbish is being used by Big Tech.
I guessed – see my response
“Sophist” and “sophisticated” are derived from the same root, as is the Russian “soviet”. Interestingly “sophistcated” was once considered to be an insult.
Neat
Yes, Mr Hurley because in our Greek infused intellectual tradition, the school of Platonists despised the school of Sophists for teaching empty rhetorical devices of nil value to anyone save the teachers.
🙂
The people of the UK can invest where they want – there are a multitude of providers providing a multitude of investment options for individuals to invest inside and outside of government-approved wrappers.
People are choosing to invest overseas often as part of a very sensible strategy of diversification and to access opportunities not available in the UK.
What you are proposing is to force individuals to invest in assets that you deem appropriate, by making the alternatives more difficult, and/or more expensive and/or less efficient.
I am not trying to force anyone to save in any way. They are free to save exactly as they
I am suggesting that the state has the right to attach conditions to tax relief if you want it.
Why do you think you are entitled to relief without conditions attached?
I’d suggest that Ian Bell should stick to cricket.
Another one who doesn’t understand safe asset theory. The wealthy can move their money almost anywhere, in an instant in the modern world. They invest in gilts because they want a large proportion of wealth to be secure in a world they know very well is a) insecure b) open to abuse everywhere c) run, in too many cases, by crooks or gangsters. You are preaching a doctrine with no purchase in reality.
I am in the Local Government Pension Scheme.
Because its a defined benefit fund they dont need to worry what my individual pot is worth.
That means that they are investing in renewable energy which is not a ‘liquid’ investment in the way that stocks and shares are.
What about some sort of ‘defined benefit’ pension scheme that people who are not currently in one can buy into which can then place its investments in long term illiquid investments like Transport, Energy etc?
I have never understood why “foreign investment” is trumpeted as a marvellous thing. Either it’s a good investment and the profits are sent abroad…. or we are trying to fleece foreigners by gulling them in to bad investments. Neither is good.
I am also surprised at the howls of protest over “compulsion” when you suggest nothing of the sort. The sense of entitlement “I demand tax concessions with no obligation” is ridiculous.
However, it’s a difficult issue – how do we get the investment we need? What vehicles do savers want? What risks do they want to bear? Where does investment risk best sit? Etc.
Personally, I think government is best placed to take the risk on long term infrastructure. This should be “financed” by “borrowing” (” used to keep MMTers
happy). This borrowing should be done via regular gilts plus upgrading the importance of NS&I. Also, index linked forward starting annuities for individual pension savers.
Not a complete answer but I’m start.
Definitely a start
Now we are discussing matters of substance, and not ideological guff. Note that there are restrictions on NS&I holdings – ironically in that debate, to prevent the wealthy investing serious amounts of money. The critics here never look past the ideological presumptions to the mechanisms that are actually applied.
They could be lifted in any budget
NS&I could also offer direct gilt holdings
So should ISAs; gilts foldable directly into an ISA without complication. There is so much could be done, but isn’t because neoliberal political parties (Conservative Labour, LibDem, Reform) do not dare, because neoliberalism would collapse; without losing the benefits of private enterprise, or the private sector; because neoliberalism is an intellectual parasite, a diseased blood sucker contaminating both the economy, and the body politics.
Some strange comments here. I wonder what group of people are particularly worried by your suggestions Richard?
The selfish
“The Selfish” you say, Richard.
They are actually a form of ‘benefit scroungers’ accepting government handouts for no work or obligation.
Agreed
Richard
Given your comments on savings and my understanding of MMT
In effect what savings are doing is taking money out of circulation which you are not that keen on, and/or they end up piling into things like property which pushes prices up.
What I suggest given that it is recommended that we should have at least three months worth of income (average earnings are about £30000) in savings is some sort of tiered system which encourages and supports people to build up the equivalent of three months of income as savings, then a further three months worth which gets a fairly good deal and the rest gets a fairly low interest rate.
Probably with some sort of earnings related pension and an improvement to National Insurance
That’s fine
But I am also suggesting these funds be used as capital – which is possible
All it requires to satisfy your implicit unstated concern is that the Government provides a guarantee; as it does of £85,000 over every British bank deposit.
Just seems like common sense to me. If I get tax relief on my ISAs and pay no tax on my Premium Bond winnings (which gave me a return of 8% tax free last financial year – I’ve always been lucky!) I have absolutely no objection to my saving being used for the common good. Those that do object can just save with whoever they want and pay the tax due accordingly
Even taking the principles of neoliberalism at face value, growth before investment is impossible; since growth requires investment in order to happen, unless there are huge amounts of unused material and labour just lying around. The problem of British demographics are deep seated, while our industry and infrastructure are already long under invested and decayed; these excuses are inoperable. We have bypassed investment for fourteen years, and the government cannot continue without investing – even if it has to borrow. This stupidity just cannot be allowed to continue under Conservative or Labour. It simply can’t go on like this
But it will for five more years…
The point of neoliberalism is not to be internally consistent but to gasllght the population into accepting being exploited.
I am convinced that most of the population, including most politicians have a completely skewed notion of how the economy actually works. Although they usually don’t spell it out explicitly it goes something like this:
1. GDP measures how much “wealth”, which they see as money, there is in the economy.
2. Growth -i.e. increase in GDP- happens when “wealth creators” are allowed to create this wealth unimpeded by government action, whose rôle in this is to impose austerity to make sure none of this wealth is prematurely wealthy.
3. Only after sufficient growth will there be enough money for the government to be able to raise enough taxes to provide us with nice things.
A little thought reveals that this is nonsense from beginning to end not only confusing a stock with a flow but also giving no account of where the money that the government will tax has come from – presumably it magically appears from nowhere when wealth creators go about their wealth creation.
But although this picture is nonsense it is pretty close to what most people think and virtually nothing that is said by politicians or media pundits calls this picture into question. And once you think the economy works like this you lay yourself open to exploitation by those with a neoliberal agenda.