Retail Therapy

Managing Director – and CPS research fellow – Nick King argues in the report “Retail Therapy” that ownership of shares should be given the same care and attention as home ownership. While pension funds act as institutional investors, the UK lags behind comparable countries when it comes to retail investing. This has knock on effects for the economy.

This is not a result of the UK lacking savings, but of a lack of appetite to invest money. Brits are more likely to hold assets in either property or cash, despite cash losing value thanks to inflation. One measure of this is the popularity of Cash ISAs in the UK. Taken together, holdings in Cash ISAs in the UK are over £250 billion. 

Why does it matter if Brits invest? Retail investing is not just a missed opportunity for investors. It represents potentially billions of pounds that could be supporting companies to grow and scale, for example. There are social benefits as well, like greater sense of economic participation. 

Reforms to address this issue need to focus on several key issues. Attitudes and awareness of potential retail investors need to change. Policymakers need to reconsider the risk of retail investing and how they feel they should be protecting people from it. The systems and structures of the UK should also be reformed, such as making IPOs more open to the public. 

However, the greatest changes should be around ISAs and a government backed fund. The report calls for Cash ISAs and Stocks and Shares ISAs to be amalgamated, to bring investment opportunities closer to millions of people who only hold Cash ISAs. It also calls for a new government backed fund to invest in a diversified portfolio of UK equities or track the FTSA index. Together, along with reforms to attitudes, awareness, systems, ad structures, will help create the kind of economy that invests in its businesses and helps its people generate wealth.