Policy Exchange - Spread the benefits of a capital-owning democracy to reduce inequality

24 Feb 2015 12:57 PM

Policy Exchange proposes mass distribution of RBS and Lloyds’ shares, compulsory savings, the introduction of a  Bonus Isa and a new generation of private sector Premium Bonds

Spreading the ownership of assets will be as important as raising wages in the long term if Britain is to reduce the gap between rich and poor.

Publishing its Economics Manifesto, leading think tank Policy Exchange says that the next government should seek to create a capital-owning democracy for all, so that each and every person in the UK  can benefit from  economic growth. Policies that boost home ownership, share ownership and embed a savings culture should be at the forefront of political thinking.

Only 15% of households own shares, and 20% of households own Premium Bonds. 64% of households own their dwelling outright or with a mortgage. The paper sets out a number of ideas to create a capital-owning democracy including:

• A mass distribution of RBS and the remaining Lloyds’ shares to every taxpayer in the country. Re-privatising the nationalised banks offers a once in a generation chance to spread share ownership and better align the interests of the public with the financial system. The public could apply for the shares at no initial cost and only pay at the time of sale. The government would retain the option of recalling the shares in the unlikely event that they don’t exceed the floor price after ten years.
   
• A Bonus Isa to give people more flexibility to build up their tax-free savings pots during the course of their lifetime. People who experience a one off financial windfall such as an inheritance, house sale or redundancy payment would benefit from being able to save a much greater amount into a tax-free account within a single year.
   
• A new generation of private sector Premium Bonds. Originally introduced by Harold MacMillan, Premium Bonds remain one of Britain’s most popular savings product across all household incomes. The government should allow private organisations to experiment with different behavioural nudges, lottery-like mechanisms and trade-offs between set interest rates and prizes to encourage more people to save.

The report also calls for compulsory saving by ending the opt-out for auto-enrolment in private sector pensions while gradually increasing the contribution rate to 12%. Under the current 8% rate, a worker earning £27,000 in a 40 year career would only save around 55% of what they need to generate the government’s recommended target.

Steve Hughes, Head of Economic and Social Policy at Policy Exchange said:

“Given the economic turmoil of recent years, it is no surprise that many people have lost faith in the ability of markets to deliver for them. That is why it is vital that everyone – not just the wealthiest in society – is given the opportunity to benefit from a sustained period of economic recovery.

“Widening the ownership of capital is one of the best ways to spread the benefits of growth. That is why the next government should commit to a mass distribution of RBS shares to every taxpayer in the country. It is also why policymakers should do all they can to help people to save. The introduction of a  Bonus ISA and a new generation of Private Sector Premium Bonds would be a good place to start.”

On Tuesday, Policy Exchange will be unveiling its economics manifesto at an event with Lord Wood of Anfield, Jeremy Browne MP and Jesse Norman MP.

For further information contact Nick Faith on 07960 996 233