Investors and savers of all political persuasions owe Lord Lawson a great deal. Without his knowledge and foresight, many of us would not be sitting on sizeable tax-free savings forts (Individual Savings Accounts) today that make our financial future more secure.
Nigel Lawson, who died last week at age 91, was an intrepid Treasury Secretary in the 1980s. As part of Conservative governments enthusiastically led by Margaret Thatcher, he set out to rejuvenate a jaded economy.
It was a radical approach – the opposite of what Jeremy Hunt is doing now – and it worked. Low taxes and deregulation instead of punitive taxes and stifling regulations that thwart entrepreneurship.
Pioneer: Nigel Lawson, pictured in 1989, rejuvenated the economy and created the Pep for savers
For example, the top income tax rate was reduced from 60 to 40 percent, while the base rate fell from 30 to 25 percent.
Taxes on businesses were also cut, while the City of London’s financial services sector was deregulated, attracting international capital from the ferry cargo. Economic growth (the ‘Lawson Boom’) followed and unemployment fell.
How could we all do with a little economic boom instead of being subject to the tax horror that is tax drag (more of us are being hit with higher income tax bills due to frozen fees and frozen higher tax brackets).
Yet it is the wealth-enhancing aspect of Lawson’s reign as chancellor for which I will always remember him most. He pursued a policy of popular capitalism and privatized large parts of Britain’s moribund industry, introducing millions to the thrills of investing.
My father – Stan the Man (unfortunately no longer with us) – was fascinated, although he liked the occasional bet on the gee-gees, he was more interested in ‘staggering’ the privatizations (investing in the hope of profit) rather than holding the stock 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 privatization of British Gas in 1986. ‘If you see Stan, tell him’ was my message to Mum when I called her – Dad spent a lot of time by way on fairs, enjoying the good life.
While the original Pep had its flaws, there’s no doubt it was the trigger that revolutionized the way we all save and invest for our future
While some may look back and wonder whether many privatizations have become commercial success stories, no one can question the triumph of Lawson’s Personal Equity Plan (Pep) – the forerunner of today’s Isa.
De Pep, launched in 1987, offered investors the opportunity to build up wealth in addition to a pension in a tax-free package. It was later given a makeover by Labor Chancellor Gordon Brown and turned into the Isa which survives to this day.
While the original Pep had its flaws, there’s no question that it was the trigger that revolutionized 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 named the country’s first Isa millionaire after maximizing – and investing smartly – his annual contributions to Peps and Isas. He then wrote 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 thank Nigel Lawson for his Pep creation.
“We should all be thankful for what is without a doubt the best tax-free investment package in the Western world – and one that many foreign investors now envy.” Absolute. With a new tax year just starting, I trust Lee’s laudatory endorsement of Isas will convince you (if you don’t already) to use all or part of your £20,000 annual allowance.
Likewise, if you are a parent or grandparent, put some money into a Junior Isa (Jisa) on behalf of a child or grandchild – and put them on the path to becoming an Isa millionaire. The Jisa must be set up by a parent or guardian and the annual stipend is £9,000.
With investment outside an Isa being jeopardized by lower capital gains taxes and dividend payments (£6,000 and £1,000 respectively), the case for Isas is stronger than ever.
It pays to take cybercrime seriously
What signal does it send to fraudsters when the Treasury advertises a ‘head of cybersecurity’ with a salary of just over £50,000? I imagine an open house: the government is just not serious about tackling financial crime.
While a salary between £50,550 and £57,500 may look attractive compared to the average £35,000 a nurse earns, equivalent positions in the private sector have salaries of £130,000 or more.
The Treasury Department says the wages it offers potential workers must represent “real value to the taxpayer.” I wonder what his reaction would be if God forbid the Treasury’s systems were hacked.
Speaking of fraud, criminals are using the (good) name of British Gas to try to trick people into buying bogus fixed rate bonds with an attractive interest rate of seven percent. As with identical fixed-rate savings bonds using high-profile brands – such as 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 Action Fraud or the Financial Conduct Authority, but given their track record for inactivity, I wouldn’t waste your time. I find washing dishes more productive.
In the fast lane: Will insurance premium inflation slow down? Not in the short term, that’s for sure
Look around to cover the absurd increases in insurance
Thanks for the latest batch of emails about the scourge of rising auto and home insurance premiums.
Although the website Comparethemarket says that the cost of annual auto and home insurance policies is currently rising 15 and 5 percent annually, respectively, many readers are faring much worse.
Richard Clark, for example, has just been told that his motor cover with Axa will cost 74 per cent more when he renews later this month – from £189.59 to £329.23.
“I’m just an old bastard living in a low-crime neighborhood,” 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 my premium would suggest. Keep shining a light on this noise.’
I will, Richard, I will.
Another reader saw his Liverpool Victoria offshoot car cover rise by almost 80 per cent to £1,100. Just like Richard, he has built up damage-free for years.
Although he increasingly provoked LV, he is at a loss as to why he is being asked to pay nearly £500 more. The only explanation, he says, must be his age (he’s a young 88). “Why doesn’t LV just tell me,” he asks. It’s exactly what I asked for last week: more transparency from insurers about significant premium increases for renewals.
Will insurance premium inflation decrease? Not in the short term, that’s for sure.
An insurance expert told me that a toxic mix of rising claims costs, broader inflation in the economy and the negative impact of destructive weather systems on the reinsurance market led to “substantial increases in premiums.”
His advice? Look around at renewal.
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