Britons! Your stock market needs you

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The Labour Government is backing a range of initiatives designed to get Britain investing. Why? Because Chancellor Rachel Reeves believes that putting more of the country’s savings to work in mainstream investments such as ETFs is a potential win-win for ordinary Brits and the wider economy. Industry estimates suggest that UK households are less likely to invest their savings than citizens of other G7 countries. Moreover, 29 million adults are sitting on cash in low-interest rate accounts offering about 1 %. Thus, the Government and UK regulator The Financial Conduct Authority (FCA) are pushing forward with reforms intended to improve financial outcomes for individuals as well as unlock investment capital for British firms.

Unlocking growth

The pro-investing case is straightforward. Official figures compare the 1% many savers make on cash with the 9 % average annual return earned on equities over the last ten years. The Government says that if £2,000 worth of savings were invested, then that money could grow to:

• £12,000 in 20 years time at an average annual rate of 9 %.
• Versus £2,700 from cash at an interest rate of 1.5 %.

Investors could therefore be £9,000 or 344 % better off than pure cash savers if current trends continue.

Investing for Britain

Policymakers are also betting that more investing will boost the UK economy. That’s because Brits typically hold more UK shares than other nationals, according to the Office for National Statistics. Thus, increasing the numbers of British investors should translate into a greater supply of capital flowing to productive British firms. More funding makes it easier for enterprises to scale up, invest in new technology, create jobs and ultimately contribute to much-needed UK economic growth.

What’s changing for ordinary investors?

Given the imperative to get the economy moving, the Government is attacking the problem from several angles at once. 1. More flexible ISAs The ISA tax-shelter system is likely to be simplified. The Government has signalled its intention to make it easier for people to understand and use ISAs, possibly by merging or rebranding different ISA types and allowing greater flexibility in how investments are held. The financial services industry believes that allowing people to invest and save in the same ISA (i.e. merge the cash and stocks and shares ISA) would be a big step forward. This last reform could help the Government achieve its goal of normalising investing without risking the resistance which met its proposal to reduce the Cash ISA allowance. 2. Promotion of diversified mainstream investments There is growing realisation of the benefits of diversified, low-cost index trackers, such as ETFs, as a long-term wealth-building tool. The FCA says: “We want more consumers to invest their money, when that is the right option for their circumstances... … So, we are exploring how we can make regulatory changes to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products. This will be restricted to the more straightforward ISA wrappers that do not contain high risk investments, and which are well diversified (such as tracker products).” 3. Targeted support The FCA recognises that many consumers do not feel confident enough to invest without more guidance. The plan is to begin allowing banks to alert customers to the advantages of moving some of their money out of cash and into better-performing equity investments. Other examples of targeted support proposed by the FCA include:

• Suggesting a higher pension contribution rate when an individual is under-saving for retirement.
• Informing consumers investing in expensive funds that cheaper alternatives are available.

4. Informing not warning The mandatory risk warnings attached to mainstream investment products like ETFs are now seen as part of the problem. As the Chancellor said in her recent Mansion House speech: “For too long, we have presented investment in too negative a light, quick to warn people of the risks, without giving proper weight to the benefits.” Details are scant on this element, but the direction of travel is clear. The FCA intends to loosen overly cautious restrictions, while the Government is joining forces with major financial services firms to support a nationwide promotional campaign that will urge more Britons to invest. 5. Greater pension transparency Another important trend is the drive to enable people to understand their pensions and plan for their long-term financial security. This is exemplified by the ongoing development of a UK pensions dashboard, intended to allow everyone to check the status of their various pensions in a single place online.

What are the potential benefits of these initiatives?

The most obvious benefit for individuals is the potential for better long-term returns. Historically, investing in a diversified mix of assets - especially equities - has outperformed holding cash, especially after accounting for inflation. What’s more, it’s now widely accepted that simple, low-cost investments like ETFs lead the way when it comes to helping everyday people build a diversified portfolio and grow their wealth. The message is spreading, which is why PwC recorded global growth in ETF assets of 27 % in 2024 and predicted another 132 % rise by 2029. The ETF investing habit is already well established in Europe thanks to cheap savings plans and innovative investing platforms that are especially popular with Gen Z and Millennials. Moreover, if Britain can broaden its investing culture then it’s especially well-equipped to serve consumers due to its competitive, native, fintech ecosystem that’s the envy of the world. From a national perspective, doubling down on the country’s inherent strength in financial services, while unlocking capital for British business more widely, also makes sense. Finally, if the drive to make investing simpler and more accessible helps reduce the unequal distribution of wealth opportunities across society, and improves the fortunes of everyday Britons, then that’s a cause the whole country can cheer on. Ready to start building wealth now? Check out the low-cost ETF offers at Interactive Investor* or InvestEngine*. Or have a look at our detailed comparison article on "Choosing an investment platform or broker".