Two clear trends have emerged in the past 12 months – borrowing has reached an all-time high while the savings habit remains in the doldrums.
Latest figures from the Council of Mortgage Lenders suggest home lending reached a record high in July of £21.8bn. Any fears of a double-dip recession in the US or of the possibility of rising unemployment do not appear to be concerning the consuming instincts of UK homebuyers.
The contrast with interest in savings could not be more stark right now. Latest figures show equity-based Isa sales down 35 per cent year-onyear in July. One might dismiss one month's figures but the trend of the past year remains the same – savings down and lending up.
On the face of it this is not really surprising. With interest rates at current levels and equity markets giving an unclear picture, it is hard to see why anything other than cash-based savings would be attractive right now.
In fact, further evidence from Pima, the Pep and Isa Managers Association, shows the trend into cash-based Isas continues to accelerate at the moment with deposit-based products now representing well over three-quarters of overall sales.
Clearly, there is a crisis of confidence in market-based investments but perhaps policymakers need some fresh thinking on retail savings in coming months.
While the Sandler report suggested that the Isa rules and regulations are working well, it did not address the continuing distortions around the savings wrapper.
Certainly it is true to say that the numbers of people who are taking out Isas continues to demonstrate a strong demographic shift in favour of lower income groups – a fact that the Treasury and the Department for Work and Pensions remain keen to promote. After all, this trend forms a key part of the Government's original intentions for the Isa format and is to be congratulated.
However, Isas are in danger of looking extremely lop-sided in favour of cash in terms of their overall investment components – not one of the Government's intentions with the design of this savings wrapper.
There is a clear danger that the great swathe of Isas will start to look like nothing more than the old Tessa introduced by the previous Conservative Government – this was clearly not the policy objective of the current administration.
However, while the Inland Revenue continues to publish its statistics, there appears to be a deafening silence from the Treasury on whether Isas are really selling in the way they were intended and are providing the income/return that investors want.
I am conscious that for most providers there is a big focus on pension savings at the moment, with the DWP Green Paper on pensions set for publication during September. This will take up much time and resources and the Government is well aware that pension savings are at rock-bottom levels from new entrants.
However, in the wake of the Sandler review perhaps now is the time for the retail fund management industry to add further weight to its overall response by calling for a review into the effectiveness of Isas at meeting Government policy objectives.
There is a significant opportunity here for policy engagement by the IFA community and product providers by connecting the Sandler arguments over distribution channels with the current Isa position. Distribution changes, new Isa asset classes for investment, wider limits – the possibilities for a review are endless.
With advice accounting for almost 90 per cent of Isa sales, it is clear that IFAs in particular are doing much to aid Government objectives – but this is not being properly recognised by policymakers, in the main. The time is now ripe for advisers to exploit this fact.As the pension debate has focused on distribution, the workplace has remained the pivotal point of product focus.
Policies designed to bolster that focus seem to go down well with the Government and with consumers. Advisers are well placed to offer cafeteria benefit packages these days and the product providers are equally well suited towards gaining the economies of scale of workplace distribution. So far, this has to be effectively roadtested with Isas.
Secondly, the opportunities for wider product development within the Isa structure remain. The whole debate about corporate bond Peps in the mid-90s is instructive in this regard. Peps, to be a policy and product success, were looking for a new investment avenue for increased fund management flexibility and towards creating better returns.
A new and invigorated debate now needs to take place on the asset classes now deemed suitable for balanced Isa investments – a debate that has not really been enjoined since the original consultation period for Isa creation.
While deposit-based Isa providers may be enjoying the current ride, there is no doubt the prospects for equity markets are not going to tempt retail investors back to markets for some time to come.
The distortion of the three Isa investment components is bound to grow rather than reduce in the near term. With interest-rate levels continuing to trend down for many months, the prognosis for the equity-based Isa remains grim.
But the aftermath of the Sandler review offers an opportunity for product providers to make the call for a rethink and for distributors – especially IFAs – to make a similar case to develop Isa distribution and investment composition.
Before Parliament returns and the Treasury, Revenue and DWP mandarins twiddle their thumbs in the summer recess, now might just be the time to make that case.
Iain Anderson is director and chief corporate counsel at Cicero Consulting