Investors and savers of all political persuasions have a lot to thank Lord Lawson for. Without his nous and forethought, a lot of us would not now be sitting on sizeable tax-exempt savings fortresses (Individual Savings Accounts) that make our financial futures more secure.
Nigel Lawson, who died last week at the grand age of 91, was a swashbuckling Chancellor of the Exchequer in the 1980s. As part of Conservative governments led with gusto by Margaret Thatcher, he embarked upon rejuvenating a jaded economy.
It was a radical approach – the complete opposite to what Jeremy Hunt is now doing – and it worked. Low taxes and deregulation rather than punitive taxes and stifling regulations that thwart entrepreneurialism.
Pioneer: Nigel Lawson, pictured in 1989, rejuvenated the economy and created the Pep for savers
So, the top rate of income tax was cut from 60 to 40 per cent while the basic rate tumbled from 30 to 25 per cent.
Taxes for businesses were also reduced while the City of London’s financial services industry was deregulated, attracting international capital by the ferry-load. Economic growth (the ‘Lawson Boom’) followed and unemployment fell.
How we could all do with a bit of economic boom rather than be subjected to the taxation horror that is fiscal drag (more of us getting hit with higher income tax bills as a result of frozen allowances and frozen higher rate tax bands).
Yet it’s the wealth empowerment aspect of Lawson’s reign as Chancellor that I will always remember him most for. Pursuing a policy of popular capitalism, he privatised swathes of moribund British industry, introducing millions of people to the thrills and spills of investing.
My dad – Stan the Man (sadly, no longer with us) – was captivated, although liking an occasional bet on the gee-gees, he was more interested in ‘stagging’ the privatisations (investing in the hope of making a quick profit) rather than holding the shares for the long-term.
Eventually, as he began to trust my financial judgment (cutting my teeth in financial journalism helped), he became more long-term in his investment outlook.
‘If you see Sid, tell him,’ was the advertising message behind the privatisation of British Gas in 1986. ‘If you speak to Stan, tell him,’ was my message to Mum when I rang her – Dad spent a lot of time away at trade shows, enjoying the good life.
Although the original Pep had its flaws, there is no question that it was the trigger which revolutionised the way we all save and invest for our future
While some may look back and question whether many privatisations have gone on to be commercial success stories, no one can question the triumph of Lawson’s Personal Equity Plan (Pep) – the forerunner to today’s Isa.
Launched in 1987, the Pep provided investors with the opportunity to accumulate wealth in a tax-free wrapper, alongside a pension. It was later given a makeover by Labour Chancellor Gordon Brown and turned into the Isa which survives to this day.
Although the original Pep had its flaws, there is no question that it was the trigger which revolutionised the way we all save and invest for our future. It is a view shared by Lord Lee of Trafford, now a Liberal Democrat politician, but who was a Conservative MP while Lawson held the keys to Number 11 Downing Street.
John Lee has a lot of skin in the Isa game. In 2003, he was declared the country’s first Isa millionaire after maximising his annual contributions to Peps and Isas – and investing shrewdly. He went on to write a book about his investment success (How To Make A Million – Slowly).
Last week, he told me: ‘The millions of Isa investors – myself included – should give thanks to Nigel Lawson for his Pep creation.
‘We should all be grateful for what is unquestionably the best tax-free investment wrapper in the Western world – and which many overseas investors are now jealous of.’ Absolutely. With a new tax year having just started, I trust that Lee’s ringing endorsement of Isas will persuade you (if you aren’t already doing so) to utilise some or all of your £20,000 annual allowance.
Equally, if you are a parent or grandparent, put some money into a Junior Isa (Jisa) on behalf of a child or grandchild – and set them on the road to becoming Isa millionaires. The Jisa must be set up by a parent or guardian and the annual allowance is £9,000.
With investing outside of an Isa now compromised by reduced capital gains tax and dividend allowances (£6,000 and £1,000 respectively), the case for Isas is more powerful than ever.
It pays to take cyber crime seriously
What signal does it send out to fraudsters when the Treasury advertises for a ‘head of cyber security’ on a salary just above £50,000? I imagine one of open-house: the Government is just not serious about tackling financial crime.
Although a salary of between £50,550 and £57,500 may look attractive when compared to the average £35,000 that a nurse earns, equivalent positions in the private sector command salaries of £130,000 or more.
The Treasury says the pay it offers potential employees must represent ‘fair value for the taxpayer’. I wonder what its response would be, if God forbid, the Treasury’s systems were hacked.
While on the subject of fraud, criminals are using British Gas’s (good) name to try to trick people into taking out bogus fixed-rate bonds paying an attractive seven per cent interest. As with identical fixed-rate savings bond ruses using high-profile brands – the likes of Centrica, EDF, Heathrow, Morgan Stanley, M&S – the message is clear. If you receive such an email, delete it.
You could also report it to either Action Fraud or the Financial Conduct Authority, but given their record for inaction, I wouldn’t waste your time. I find washing the dishes more productive.
In the fast lane: Will insurance premium inflation abate? Not in the short term, that’s for sure
Shop around to beat the absurd hikes in insurance
Thank you for the latest batch of emails on the scourge of rising car and home insurance premiums.
Although the website Comparethemarket says the costs of annual car and home cover are currently rising year on year at a rate of 15 and five per cent respectively, many readers are faring far worse.
For example, Richard Clark has just been told his motor cover with Axa will cost 74 per cent more if he renews later this month – jumping from £189.59 to £329.23.
‘I’m just an old git who lives in a low crime area,’ he told me last week.
‘I have made no claims, have no convictions and have not upgraded from a Vauxhall Zafira to a Maserati as the size of my premium suggests. Keep shining a light on this racket.’
I will, Richard, I will.
Another reader has seen his car cover with an offshoot of Liverpool Victoria jump by nearly 80 per cent to £1,100. Like Richard, he has built up many years of no-claims.
Although he challenged LV on the increase, he is none the wiser as to why he is being asked to pay nearly £500 more. The only explanation, he says, must be his age (he is a young 88). ‘Why doesn’t LV just tell me,’ he asks. It’s exactly what I called for last week – greater transparency from insurers on significant renewal premium increases.
Will insurance premium inflation abate? Not in the short term, that’s for sure.
One insurance expert told me that a toxic mix of rising claim costs, wider inflation in the economy, and the adverse impact on the reinsurance market of destructive weather systems, was leading to ‘substantial premium increases’.
His advice? Shop around at renewal.
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