Open letter to Eric Forth, MP
Thank you for your letter dated April 22 enclosing a reply to some of the items raised in my letter to Baroness Hollis, for which many thanks.
In Ms Ruth Kelly's reply, she states that the intention of the Government was to ensure that tax relief was distributed as fairly as possible and closely targeted those without substantial savings.
It is, therefore, difficult to understand how this objective was met by the launch of investment vehicles that gave the most significant tax relief to the better-off.
Even now, with the reduction in the tax credit – which, incidentally, does significant damage to retired clients in receipt of investment income – the capital-gainstax-free status can only be of benefit to the more substantial saver. This is self-evident.
Isas have been characterised by endless complication (the insurance element, for example) and are hopelessly difficult for most clients to understand. This is especially so in relation to the mutual exclusivity between cash deposit investment and equity-based investments. How can the ownership of a non-regulated product (cash Isa) prohibit the ownership of a regulated product (maxi Isa)? No doubt the minister can recite the maxi Isa and mini cash Isa rules by heart – but has she ever tried to explain them to an investor? Would the investor understand?
For the minister's information, the Personal Investment Authority severely criticised Prudential in 1994 for encouraging holders of matured Tessas to invest in Peps. Prudential's line was: “You've met Tessa, now meet Prudence.” All very clever but the PIA was not amused.
The basis of the criticism was that a cash investor was a cash investor and an equity investor was an equity investor and never the two shall meet. But the Government has institutionalised the very confusion that the PIA identified as being of detriment to the consumer.
By giving the same name to both an equity investment and a cash investment, the Government has been inept. At best, it demonstrates a lack of understanding of the field. At worst, it demonstrates an attempt by Labour (which was never really “New”) to overturn the success of Peps and Tessas to the detriment of the consumer. Champagne socialists really do view working people with contempt.
The only conclusion that one can come to after seeing such ineptitude is that the objective never was to increase savings but, rather, decrease them. This fact is demonstrated in the official records, which show that the savings ratio has collapsed under the Labour administration.
The only possible other explanation, and this is given credence by something Home Secretary David Blunkett said a few days ago in another context (immigration), is that the desire was simply to manage what people thought.
The fact that it may backfire, cause confusion, conflict with previous regulatory decisions, lose the momentum towards successful savings strategies and cause millions to be dependent on state benefits in retirement was not even considered.
The objective was to make people think that the Government was helping them. After so many years of spin and opinion management, this latter explanation, perhaps, emerges as the most plausible.
So what of stakeholder? Surely the Government recognised that a product could not be distributed below cost? Let us examine the Government's track record:
The launch of a study by B&W Deloitte to try to determine the appropriate charging level for investment products years after imposing a 1 per cent charge cap.
Total faith in the design of investment products by one with absolutely no relevant experience.
It is still working on a “streamlined” sales process (and still not sure what this means) years after streamlining the charges.
The whole thing has been strung out over years. Each new “initiative” is an opportunity for the Government to claim a headline. Each new twist and turn is an historic victory in the Government's fight to protect the consumer. What tosh!
The whole saga boils down to one of the greatest examples of Government incompetence imaginable. The consumer(as ever) is the real loser.
They say a people get the Government they deserve. What on Earth did we do to deserve this?
I would be grateful if you would pass this letter to Ms Kelly for her comments.
The Harvest Partnership