The FT features an interview with Rachel Reeves this morning in which the following is noted:
I have some sympathy with Rachel Reeves desire to change the culture of the savings industry, but think she is going about this in quite the wrong way.
Firstly, companies do not use share capital to fund expansion these days. They fund themselves with retained earnings and loans. Once they have got through the venture capital stage shares rarely play a big part in the process, so the emphasis in the plan is wrong.
Second, most savers want security for their savings. They do not want equity investment, whether that is rational or not. So forcing more equity onto them does not solve issues in the savings market.
Third what people want is better public services, so what is required is more public investment.
As I have long suggested, require that the £70 billion a year that goes into ISAs goes into green bonds using a strict taxonomy that requires evidence of new investment activity resulting in net zero outcomes and you would transform the savings market. much would have to re state led.
Extend this to 25% of pension markets and let people choose if they want to invest locally and in things like housing, energy, transport and so in and the funds to transform our society would be available.
People are wise enough to know that most private sector investment undermines our chances of actual survival now. That type of investment is most likely to bring forward catastrophic climate events by encouraging yet more unsustainable consumption. So, we need to invest in the transition to sustainability, which only government can lead. Give them a chance to do so and to see the results in their community and you would most definitely change the savings market for the better.
Rachel Reeves is right to highlight the need for a change in the savings market. Loading people with yet more shares that do not create value or sustainability is not, however, the answer to any known need or question. She needs to believe in the power of state solutions to meet people's savings and investment needs.
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Shares are financial assets. They do, however, require classification by societies between those that promote capital investment in businesses delivering practical goods and services and those simply supporting blowing financial asset bubbles. In 2007 financial sector indebtedness for this kind of asset speculation had reached 125% of GDP within the American financial sector. This was unsustainable and led to the GFC.
Page 126, Chapter 6, “Why Minsky Matters” L. Randall Wray
Richard,
I agree, but the UK state appears to be only interested in preserving the financial services status quo.
Just look at the revelations coming out in “Rigged” by Andy Verity. It was states and national banks that “rigged” the Libor and Euribor rates in 2008.
Labour has asked local consituencies to respond to the draft ‘National Policy’ document.
The meeting here is this week – so I may put in a very short piece along the lines of what you are saying, to explore whether they may be prepared to put it up to the centre .
The National Policy consultation is probably only going through the motions but will be interested to see.
These constituency meetings have such a full agenda – it will have to be just a few sentences.
Will try to send a draft as another reply to this post.
Please do
Agreed.
But may I suggest a Fourth dynamic?
People need decent pay to live, service some debt and save.
What’s Labour’s view on that?
And does anyone know what Labour will do with RTB in social housing (Right To Buy)? I’ve not heard anything yet.
It’s deleterious effects on council housing since 2010 has been immense.
Agreed
Richard et al. This rather garbled and unfinished first draft to encourage a Constituency Labour Party to respond to the ‘National Policy Forum – first draft manifesto. It has to be shorter and better – not asking you to spend precious time.
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Drawing on recent discussion and publications by leading economists and political economists
Response to NPF – a contribution from the CLP
We suggest that in the policy document (and the manifesto) there is a case for highlighting up front how Labour will escape from the disastrous doom – loop bequeathed by the Tories – a static economy, declining real incomes, declining services , trade and investment.
This could help to persuade people that ‘we know how to do it’ that Labour knows how to make the system work differently, in order to achieve a rebuilt NHS, clean energy by 2030 and all the other targets.
At present , the BBC interviewer encourages a Labour front bencher to list our plans – rebuild the NHS, reduce waiting lists, a zero carbon power system by 2030 etc , and more , before the killer accusatory question- ‘how much will it cost, there is no money and whose taxes will you raise’?
‘We will say nearer the time,’ or ‘closing some tax loopholes ‘ does not always sound convincing.
We could start by saying all our programmes will be created along with their own source of funding much of which will be self generated (Keynes : ‘anything we can do we can afford’). The Tories generated £500bn out of nowhere in the 2020-21 pandemic.
Labour’s ‘non negotiable’ fiscal rules will be entirely different to what the Chancellor’s Advisor Andy Haldane calls the ‘simplistic’ Tory rules which have wrecked investment and wrecked services.
We will manage the whole national balance sheet – not only ‘debt’ – over the 5 years of government – and further ahead. This will include , alongside the liabilities (often mis-defined as ‘borrowing’) , what they are being used for – the national assets that belong to the country. These could include assets such as – functioning water systems, a rail system, energy supply system, health system, and not only purely financial assets which are largely making money out of money from market monopolies , shareholders getting share buy backs
So Labour’s fiscal rule directly stimulates investments which generates identifiable returns next year and the year after, helping to rebalance between the younger and older generation.
On boosting investment in the economy – the shadow chancellor has stated Labour will harness the savings system and pensions industry using National Business Bank and the National Wealth Fund , to help create new high tech firms, and expand and attraction firms to the UK .
Funds will be invested not only in shares, but even more importantly , we will also redirect the £70bn a year invested in ISA Instant Savings , and pension savings and withdrawn high income pension subsidies to generate green investment bonds’ to directly generate green activity green jobs, and provide stable returns to savers.
Good start….
And sorry – I am up against it today