Editor: Politicised ISAs Won’t Get Britain Saving – or Investing!

I
think
I
did
need
to
hear
it,
at
the
time.
A
truism
is

not
a
truism,
then,
when
it’s
useful.

In
my
case
it
was.

Readers
of
this
column
will
be
familiar
enough
with
my
successful
mission
last
year
to
pay
off
a
credit
card
that
was

squeezing
my
finances
and
crippling
my
self-esteem.
But
one
of
the
most
beneficial
parts
of
that
process
was
discovering
I
wasn’t
alone.

Plenty
of
people
I
spoke
to
in
the
aftermath
of
that
column
described
their
own
journey
not
only
in
understanding
money,
but
in
becoming
comfortable
retaining
it.

In
hindsight,
I
would
almost
go
so
far
as
to
self-diagnose
as
having
had
a
mild
phobia
of
being
wealthy.
Yes,
that
line
definitely
belongs
to
the
self-indulgent
narrator
of
a
whimsical
West
End
play.
But
it’s
the
truth.
It
would
certainly
explain
why,
as
a
younger
man,
I
seemed
to
be
doing
everything
I
could
to
get
rid
of
my
money.
I
didn’t
know
how
to
manage
it,
so
I
spent
it
so
it
wouldn’t
be
there
anymore.
I’ve
since
started
saving
again!

Having
understood
this,
I’m
fascinated
by
the
UK’s
lack
of
savings
culture.

Why
Do
We
Struggle
to
Save?

To
unpack
this,
I
am
going
to
posit
two
basic
points.
The
first
is
you
shouldn’t
invest
without
some
savings;
and,
secondly,
that
house
prices
are
far
more
influential
than
we
notice.

In
my
article
earlier
this
week,
I
kicked
off
our
coverage
of
individual
savings
accounts
(ISAs)
by
highlighting
that,

by
a
country
mile,
the
general
public
prefers
cash
ISAs
to
stocks
&
shares
ISAs.

This,
I
imagine,
is
the
result
of
a
complex
combination
of
risk
aversion, poor
financial
education,
and
mistrust
of
financial
services.
Cash
ISAs
are,
one
can
presume,
seen
as
a
“bank”
product,
with
a
“secure”
rate
attached.
The
FSCS
safety
net
of
£85,000
helps.
Mention
the
words
“stocks
and
shares”
and
ISAs
start
to
look
–
and
sound
–
very
different.

To
be
clear:
this
is
not

all
bad
news.
The
cash
ISA
is
a
good
vehicle,
especially
right
now,
while
interest
rates
remain
high.

But
there
are
problems.
For
one,
good
cash
ISA
take-up
masks
what
is
actually
going
on
under
the
bonnet
of
Britain’s
finances.
The
truth
is
there
is
a
savings
crisis.
A
lot
of
people
don’t
know
what
a
cash
ISA
even
is,
let
alone
an
ISA
rate
or
ISA
allowance.

Moreover,
according
to

a
report
by
the
Resolution
Foundation
last
month,
more
than
11
million
people
of
working
age
don’t
have
a
spare
£1,000
to
pay
for
unexpected
bills.

In
partnership
with
the
abdrn
Financial
Fairness
Trust,
it
estimates
the
UK
has
an
emergency
savings
and
retirement
savings
shortfall
of
more
than
£74
billion.

This
is
a
shocking
conclusion,
not
least
because
a
grand
is
a
staggeringly
low
bar.
As
Morningstar
and
others
have
long
argued,
a
comfortable
“rainy
day
fund”
for
unexpected
redundancy,
life
emergencies,
or
just
a
huge
bill,

is
around
three
months’
wages.

According
to
the
government’s
latest
data,
the
average
annual
pre-tax
salary
is
£34,900
–
a
monthly
pre-tax
wage
of
£2,908.
After
tax
(and
after
a
minimum
auto-enrolment
pension
contribution)
this
person,
I
estimate,
takes
home
a
maximum
of
£2,197
a
month.
Three
months’
salary
to
them
would
be
£6,591.
That
this
average
person
might
struggle
to
even
have
a
spare
grand
speaks
volumes.
God
knows
how
those
on
even
lower
incomes
manage.

But
that’s
the
answer.
They
don’t.
Why?

Why
do
We
Have
a
Savings
Problem
in
The
UK?

There
are
myriad
factors
that
have
contributed
to
the
UK’s
savings
crisis.
Some
MPs
would
posit
laziness
as
a
factor,
but
I
think
it’s
more
complex
than
that.
Social
mobility
is
stalling.

The
first
is
debt.
You
can
blame
the
availability
of
easily-accessible
(and
irresponsibly-advertised)
consumer
debt
for
one,
and
its
ubiquity
on
TV
screens
–
selling
everything
from
sofas
to
cars,
televisions,
tech,
holidays
and
short-term
credit.
In
the
long
run,
such
deals
tend
to
make
life
more
expensive.

What’s
more,
fast
fashion,
cheap
consumer
goods,
and
the
buy-now-pay-later
lifestyle
have
all
eaten
away
at
our
appetite
to
save.
Get
what
you
want
now
–
or
so
we
are
implicitly
told.

You
can
also
blame
stagnating
wages,
the
war
in
Ukraine,
or
maybe
even
Covid-19.

But
I
don’t
think
that
explains
it
entirely.
A
key
problem,
many
people
tell
me,
is
the
sheer
cost
of
housing,
and
the
very
obvious
knock-on
effect
this
has
on
childcare
costs.

The
UK’s
Housing
Crisis
Laid
Bare

Over
the
past
25
years,
house
prices
have
exploded.
The
available
housing
stock
has
reduced,
the
quality
of
housing
has
stagnated,
and
social
housing
has
disappeared.

Today,
parents
often
work
multiple
jobs
to
pay
the
bills.
This
requires
logistical
backflips
to
keep
kids
safe,
fed,
and
entertained
after
school.
According
to
one
estimate,
the
average
cost
of

sending
a
child
under
two
to
a
nursery
full-time
in
the
UK

is
£14,030,
or £1,169
per
month.
Suddenly
that
average
monthly
salary
doesn’t
look
so
big,
does
it?

But
back
to
housing.

As
supply
has
dwindled,
prices
have
risen,
and
have
led
to
the
further
compartmentalisation
of
UK
housing.
The
pressure
placed
on
the
rental
market
means
it’s
now
cheaper
to
be
a
homeowner
than
to
outsource
the
upkeep
of
your
residence
to
a
landlord.
But
tell
that
to
a
mortgage
holder
crippled
by
the
last
18
months
of
mortgage
mayhem,
mini-Budget
madness,
and
Bank
of
England
intervention.
There
is
no
easy
angle.

Spotting
a
chance
to
make
bank
from
demand,
houses
of
multiple
occupancy,
or
HMOs,
now
sit
where
single
residencies
once
stood,
and
often
for
more
than
twice
the
price
per
unit.

There
are
those
who
will
tell
you
this
is
a
demand-side
problem.
I
firmly,
firmly
disagree.
Its
root
is
squeezed
supply,
and
a
political
class
that
has
prioritised
those

with
houses
over
those
who
can
reasonably
be
expected
to

need
them.
A
failure
to
plan
has
collided
with
an
unwillingness
to
compromise,
and
the
results
have
been
disastrous.
It’s
now
so
bad
people
talk
in
the
pub
about
kicking
old
folk
out
of
their
large
four-bedroom
detached
homes!

For
the
record,
I
know
this
because
I
heard
it
over
and
over
again.
And
not
just
in
the
pub.
In
the
homelessness
shelters
in
December.

As
the
clock
struck
midnight
on
Christmas
day,
several
guests
told
me
how
they
went
from
being
fully
employed
with
homes
to
sleeping
rough.
And
it
happens
quickly.
Within
six
months
you
can
be
out
on
the
street
with
nothing.
For
those
who
can’t
keep
up,
or
who
suffer
just
one
of
life’s
very
normal
dislocations,
the
consequences
are
horrifying.

Even
for
those
not
staring
down
this
barrel,
all
this
has
a
marked
effect,
and
it’s
psychological
as
well
as
economic.
This
is
why
the
“laziness”
arguements
are,
well,
lazy.

Lifetime
ISAs
and
Life-Long
Solutions

Home
ownership
is
at
the
heart
of
Britain’s
social
contract.
Work
hard,
save
well,
and
it
should
be
within
your
reach.
Except
that
it
is
now
suddenly
–
catastrophically
–
harder,
even
for
the
affluent,
who
are
(absurdly)

reliant
on
government
top
ups
to
their
Lifetime
ISAs
to
supplement
what
they
earn,
save,
and
inherit
from
the
Bank
of
Mum
and
Dad.
Some
believe
products
like
this
merely
push
house
prices
higher.

For
those
without
this
support,
meanwhile,
there
is
little
point
in
even
trying.
So
why
bother?
If
saving
is
tricky,
why
would
people
even

consider
investing?

This
is
where
arguments
about
“laziness”
miss
the
point.

Laziness
isn’t
the
word,
but
disaffection
certainly
is.
Plenty
of
people
are
working
hard,
but
they’ll
tell
you
their
money
doesn’t
go
as
far.
Throw
inflation
into
the
mix
and
you
have
a
perfect
formula
not
just
for
demoralisation,
but
outright
despair.
I
often
think
about
that
when
economists
observe
Britain’s
high
inflation,
low
productivity,
and
stagnant
economic
growth.
Nobody
has
admitted
we’re
in
the
throes
of
stagflation.
But
we
are.

This
month,
Jeremy
Hunt
told
us
that
one
answer
is
a
“British
ISA”.
It
will
get
Britain
saving,
but
also
Britain
investing
in
itself.
Or
so
he
argued.

A
continuation
of
George
Osborne’s
politicisation
of
savings
policy,
this
product
hands
savers
a
generous
£5,000
allowance,
but
compels
them
to
buy
UK-listed
companies.

I’ve
covered
the
financial
arguments
for
and
against
the
policy
here,
but
there
is
one
more
thing
to
say.

The
ISA
as
a
product
has
evidently
been
a
triumph.
But
there
is
no
point
even
thinking
about
more
ISA
products
if
the
country’s
household
finances
are
in
the
state
they
are.

It
marginalises
the
already-disaffected,
confuses
those
with
even
an
ounce
of
financial
nous,
and
–
and
this
is
the
crucial
point
–
is
a
politicised
distraction
from
the
actual
issue.
What
next?
A
Brexit
ISA?
You
get
my
point.

The
answer,
instead,
is
to
work
on
all
the
issues
that
make
saving
harder.
People
deserve
simple
incentives,
good
financial
information,
and –
frankly –
some
much-needed
hope.
Once
you
choose
hope,
anything
is
possible.
Now
there’s
a
truism
for
you.

Ollie
Smith
is
UK
Editor
at
Morningstar

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