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Every week, Kyle Caldwell and guests take a look at how the biggest stories and emerging trends could affect your investments, with practical tips and ideas to help you navigate your way through. Join the conversation, tell us what you want us to talk about or send us a question to OTM@ii.co.uk. Visit www.ii.co.uk for more investment insight and ideas.
Hello, and welcome to On the Money, a weekly look how to get the best out of your savings and investments. In this episode, we're gonna be covering the key personal finance announcements that were made by chancellor Rachel Reeves in her mansion house speech, which took place on the evening of the July 15. And we're also gonna be talking about which policies didn't crop up in the speech but remain in the government sites. Joining me to discuss this topic is Craig Rickman, personal finance editor at Interact Investor. Now before we get into the detail, I just wanted to flag that we're recording this podcast remotely shortly after the speech was made in order to have the podcast published as usual on a Thursday.
Kyle Caldwell:And, also, just to be aware that the information that we're providing is based on what we had available to us at the time of this recording. So, Craig, before we delve into it all, let's start off with what is the mansion house speech, and why does it matter from a personal finance perspective?
Craig Rickman:Yeah. Sure. So simply put, it's an annual address, and an opportunity for the government to outline its plans and visions for the financial sector. So so in terms of the content, what does this involve? So this includes typically includes things like regulation, pension and savings policy, housing reforms, and that kind of thing.
Craig Rickman:So it's essentially the government's way of saying, this is what we're going to do to make things better, to improve the way things work, to boost The UK economy. So if the chancellor does announce changes, and we we saw some yesterday, they typically do affect us in some shape or form in terms of how we save, how we invest, and how we borrow. It's not to be confused with a budget. It's not a fiscal event, but it is important to keep an eye on on the mansion house speeches, what's going on, and the reforms that have been put forward. There was a lot of speculation before this speech, mainly around ICEs.
Craig Rickman:Some of the original reports didn't come to pass, but there were still some reforms that will impact how we interact with our finances.
Kyle Caldwell:So in terms of the contents of the speech, the key takeaway from a personal finance perspective was the announcement of an ambition from the government to make Britain more of a nation of investors. So chancellor Rachel Reeves announced in a speech that investment is presented in too negative a light and argued that there's been too much focus on risk in investing. She says, for too long, we have presented investments in too negative a light, quick to warn people of the risks without giving proper weight to the benefits. It was also announced that there will be a campaign to promote the benefits of retail investments, and that campaign will launch next April. And there will also be a brand new type of targeted support for consumers ahead of the new financial year.
Kyle Caldwell:Craig, could you explain more about this brand new type of targeted support for consumers?
Craig Rickman:Yeah. Sure. So this targeted support is something that was launched by the Financial Conduct Authority, the city watchdog. There was some draft rules on this published a few weeks ago. And the idea of this is that we'll essentially will enable financial providers to suggest appropriate products and strategies to consumers with similar circumstances and characteristics.
Craig Rickman:And this has been given the green light, as you'd say, from April 2026. This is potentially a you know, could be a a big change, to, the way that that that people interact with their finances. Could sort of think of it as a middle ground between basic guidance and regulated financial advice. So it's some extra assistance with life's big financial decisions, a nudge if you like, without it being a personalized recommendation. I think the FCA and the government are concerned that less than 9% of of adults access financial advice.
Craig Rickman:So, you know, fewer than one in 10 people. And there's, there there's a quote here, and their concern is that many are turning to informal and unregulated sources of guidance such as social media. So the idea here is to try and help people make better financial decisions or steer them towards them. So I think, on the whole, it's a it's a good thing. It it I guess the government in its mansion house speech answered one of the key questions around this, which is when will it be available from?
Craig Rickman:So we've got the answer to that. A consultation on targeted support is still running, and so we should learn a little bit more about how it's gonna work over the coming months. But I feel this could be this could have a a really positive impact on, on consumers, namely to make sure that not necessarily to make sure, but to give them sort of more steer towards financial decisions, which might be more appropriate for them than than potentially what they're doing at the moment.
Kyle Caldwell:In terms of the comments made by Rachel Reeves regarding the overemphasis on risk and not enough emphasis on the benefits of investing. That's music to my ears. I've been working in the sector for over fifteen years now. And over the years, I've had many a conversation with friends about the merits of investing. However, the first thing that always crops up is risk.
Kyle Caldwell:And, you know, a lot of what my friends will say, well, isn't there a lot of risk involved with investing? However, of course, this is a misconception if you are investing for the long term and you have diversification in terms of what you're investing in in your portfolio. Over the long term, the figures show that the best route to try and grow your wealth ahead of inflation is to invest it and and is and is also to invest it in growth assets such as funds that invest in shares. Whereas if you leave in cash over long term, cash is eroded by inflation. So I'm really interested to see how the government's attempts to tackle this dilemma in trying to switch a greater emphasis on encouraging people to think about the merits of investing rather than being put off by the fact that there's a possibility that the value of your capital can fall.
Kyle Caldwell:I touched on diversification, and that is one of the key ways that investors can reduce risk by investing in a range of different types of investments, different types of funds. This gives a portfolio diversification. And what happens here is is that when there are short term periods in which stock markets are volatile, which, of course, can happen, a a diversified portfolio helps to safeguard returns, and it also gives the portfolio plenty of scope to grow over the long term. When it comes to risk, volatility is part of the course of investing in the stock market. We've, of course, seen very recently stock markets fall in response to US tariffs.
Kyle Caldwell:And prior to that, the COVID nineteen pandemic caused global stock markets to fall suddenly over a short time period. And if you go back even further, of course, there was the financial crisis in 02/2007, 02/2008. At the turn of the millennium, there was the tech bubble that spectacularly popped. But over the long term, stock markets do tend to recover and do tend to reward patients investors that are investing for the long term. If you look at a very long term chart of a major stock market index, such as the MSCI Wales, S and P five hundred, or the 41 hundreds, of course, you're gonna see that there's been some bumps in the road.
Kyle Caldwell:But over a ten, twenty, thirty year period, those bumps are actually not that big looking on looking on a chart in the grand scheme of things. And over the long term, stock markets do tend to be wealth machines. Of course, the trouble is there's no guarantees with investing. There's no guarantees that a return will be made. There there's the prospect of capital loss depending on what you invest in and how long you invest in that investment for.
Kyle Caldwell:And that's why there has to be risk warnings on investment literature, including for funds that highlight that fact. However, we've announced that there will be action to look at our current approach to risk warnings, and that'll be reported back in January. Craig, what are your thoughts on this risk warning review? Is it one that you welcome?
Craig Rickman:Yes. Couldn't agree more. I think there's this perception among sort of certain sections of society that keeping money in cash is safe and investing in the stock market is a gamble. But as you've alluded to and as a lot of the the data shows, when sort of looking at your your long term future, keeping your money in cash tends to be the biggest gamble because there's a risk that your money isn't gonna keep pace with inflation and will erode in real terms. So I think the the the government's decision or Richard Reeves' decision to examine risk warnings and try and sort of look at flagging the benefits is a really, really important, and needed move.
Kyle Caldwell:Let's now turn our attention to ISAs. So reforms to cash ISAs were heavily touted ahead of the mansion house speech. The expectation was that Rachel Reeves was giving a lot of thought to cutting the yearly cash ISO allowance from 20,000 to 4,000. So thinking from the government here was that if there's less scope to save into a cash ISO every year, then more money may then flow into the stocks and shares ISA version, and this would improve consumer outcomes and also boost The UK stock market. So the cash ISA alongside the stocks and shares ISA, they are the two most popular ISA types.
Kyle Caldwell:However, cash ISA accounts openings do trump the stocks and shares ISA version. Just give you an example of that, in the twenty twenty two to twenty twenty three tax year, 7,800,000 people took out a cash ISA, and this was more than double the 3,800,000 people that took out a stocks and shares ISA. However, before the speech started, Craig, the Financial Times got the scoop that those rumored plans to cut the cash ISA allowance are being put on the back burner for now. In the actual speech, ISAs did get a small mention. Reeves says, I'll continue to consider further changes to ISAs engaging widely in the coming months.
Kyle Caldwell:And she also says, I recognize the potential for ISA reform to improve returns for savers and access capital for UK businesses. Craig, we've only got that short quote to go off, but it does appear that the ISA system could still be reformed.
Craig Rickman:Yes. Absolutely. I think I would, my view is that the a cut to the cash ISA limit, which I mean, it was it was hugely divisive or is a hugely divisive issue, as we saw, in the lead up to the speech. But I I I don't think the the prospect of that has disappeared. I think it's on the table, but it seems the government is perhaps giving itself a bit more time to liaise with the industry, to to work out whether it's the right thing to do or not.
Craig Rickman:And I think that's a sensible move, if only to avert another, you know, potentially embarrassing u-turn. So I don't think that that is you know, that the government could revisit that at some point, but there were some there were some clear signaling towards reform to the ISO landscape. And I think, you know, there have been lots of people lots of people, lots of companies urging the government to simplify things. Because as things stand, there are currently six in in operation, and five are open to new subscribers. But the thinking is that's that's a bit messy, and we need to make things easier, for people to choose the right one.
Craig Rickman:I guess, namely for this, choosing the right one between cash and stocks and shares is, as you know, are by far the the two most popular types. So it very much seems like further ISO reform is in train.
Kyle Caldwell:So my personal view, which I know you also share, Craig, is that a simpler ISO system and potentially less of them will help break down the barrier of complexity. And if it is a simpler system, that'll hopefully then encourage more people to engage with the merits of investing over the long term. My views on the cash ISA is that it's a useful way to put money in to build an emergency fund, which as a rule of thumb is three to six months of salary in cash that you can access quickly to utilize if you, for example, unfortunately, are made redundant or to fix a major problem, such as repairing a roof or getting a new boiler. But in terms of growing wealth over the long term, as I mentioned earlier, investing is the key piece of the jigsaw in order to grow wealth and ideally investing in growth assets such as funds that invest in shares. However, while all these reforms are certainly welcomed, I do think what would really help to get more people investing is if stamp duty on UK shares was removed.
Kyle Caldwell:This is an unnecessary barrier to investing in our own home market. An interactive investor, we've been very vocal for a long time in calling on stamp duty being removed. And in response to the mansion house speech, Interactive Investors chief executive Richard Wilson said, stamp duty on stocks and shares is a tax on backing British business, and scrapping it should be the cornerstone of any serious reform. It's lose lose. It's a charge on confidence, a tax on participation, a drag on liquidity.
Kyle Caldwell:It makes investing in UK companies more expensive than it should be and sends the wrong signal about where we want people to put their money. We've heard time and time again that the government wants to boost long term investing. Now it needs to back those words with substance. Getting rid of stamp duty on shares is one of the fastest, simplest, and boldest things this government could do to shift the dial. And just to add another point, our own research shows strong support for the removal of stamp duty.
Kyle Caldwell:So research by an investor found that 72% of retail investors will be more likely to invest in UK shares and investment trusts if stamp duty was scrapped compared to just 7% who said lowering the cash ISA allowance would have an impact. Now while there was no cash ISA announcements, there was an ISA related announcements made before the speech. That announcement was that a fund structure called long term asset funds, LTAS, will from the start of the next tax year, so April 2026, be allowed to be held in stocks and shares ISAs. This one type can already be held in the innovative finance ISA, which was designed for peer to peer loans and other less liquid investments. Now for those not that familiar with this one structure, so LTAFs invest in illiquid assets such as private equity and infrastructure products.
Kyle Caldwell:They were initially intended for pension funds or sophisticated private investors, but it now appears that retail investors are being targeted. Now one of the big differences between an LTAF and an open ended funds is that an LTAF has notice periods, and these notice periods are typically a minimum of ninety days. So therefore, if you're in a hurry for your money, you won't be able to access it quickly, whereas open ended funds offer daily dealing. Now the reason why these funds have notice periods is because illiquid assets are hard to sell quickly. And by having notice periods, they protect investors from the risk that a lot of money exits at the same time if a if a lot of investors are asking for their money back all at once.
Kyle Caldwell:As if they don't have these notice periods, then the investments will have to be sold. There'll be a fire sale of assets, and then the underlying value of those investments will be sold potentially too cheaply versus their actual value, then that'll harm the remaining investors in the funds. For me, as with any funds, it's important to look under the bonnet, understand what what an LTAPH is investing in, and also be comfortable with the fact that LTAPHs have these notice periods as I think fund investors at the moment are very used to having daily dealing. So that is definitely something that an investor needs to get their heads around when considering the LTACH fund structure. Craig, any further thoughts on LTACHs?
Craig Rickman:I think what's interesting about it is that, as you note, LTAPs are only currently available in the innovative finance ISA, which compared to, the cash type and the stocks and shares type makes up a really tiny part of the ISA market. So in the 2223 tax year, there are only 17,000 innovative finance ISAs taken out. And, you know, that compares to yeah. So in in the same year, it was just under 8,000,000 cash ISAs and just under 4,000,000 stocks and shares ISAs. So it's a it's a mix of a fraction of the ISA market.
Craig Rickman:And I guess, you know, allowing assets that were previously reserved for that type of ISA, and then allowing those within the stocks and shares version could suggest, that that perhaps the government is looking to simplify things, and perhaps move towards a sort of a a slimmer, nicer landscape and perhaps thin some of the herds. But, you know, that's, you know, that's just a thought at this stage, and we'll we'll we'll have to find out, what the government ultimately is gonna do with this.
Kyle Caldwell:And for the final section of the podcast, Craig, let's now move on to pensions. So ahead of the speech, there's lots of speculation regarding auto enrollment rates being potentially raised, but there were not any mentions of this in the speech. Now while there were no new reforms for pensions mentioned in the speech, the chancellor did point out her aim of ensuring that British savers benefit from the success of fast growing businesses. Craig, this again fits into the government's aims to try and get Britain investing and, in turn, boost The UK stock market?
Craig Rickman:Absolutely. Yeah. Yeah. That's that's been the theme, you know, very much throughout, you know, Labour's return to power. And, you know, particularly with with pension schemes, it's not just about getting more people investing, but trying to funnel more money into UK assets.
Craig Rickman:We we didn't hear anything else about pensions. There were reports that the government was looking at auto enrollment and the workplace pension system, namely, whether to start a consultation to to consider jacking up, the minimum amounts, which are currently 8% of qualifying earnings. So employees pay 5%, employers pay 3%. But the the thinking is that, you know, that is probably not enough for most people to secure a comfortable retirement. And so, the government is looking at this.
Craig Rickman:We know that it's on the government's radar as part of phase two of its landmark pensions review. So we'll come onto it at some point. There are some big decisions to make around that because, you know, if you were to increase, auto enrollment contributions, so that's an extra cost for staff who are still feeling the pinch from the rising cost of living and also employees too who have faced some additional costs in recent years in the form of tax rises and the minimum wage increase. So we we didn't hear anything about that. We also didn't hear anything about self employed pensions.
Craig Rickman:There's there's quite a worrying low uptick of of pensions among self employed workers, and we know that's something the government is keen to address too. Those those were two areas that were reported in the lead up to the mansion house speech and something that we could learn more about. We didn't get that, but, you know, we will hear more about that those two areas and what the government is gonna do there at some point.
Kyle Caldwell:So we've now covered off all of the personal finance announcements that were made in the mansion house speech. Before we go, just go going back to what Craig said at the start. The mansion house speech is not the forum for introducing major changes to the tax system. However, we do have the autumn launches coming up. I'm sure there's gonna be plenty of rumors about, of the fiscal rules that are in place at the moment and about whether there will be any tax changes during that budget.
Kyle Caldwell:We will, of course, on our on the money podcast, cover the autumn budget later on in the year. We may also do a preview of the budget ahead of this. My thanks to Craig, and thank you for listening to this episode of on the money. If you enjoyed it, please do follow the show in your podcast app and do tell our friends about it. If you get a chance, please leave a review or a rating in your podcast app too.
Kyle Caldwell:We'd love to hear from you. You can get in touch by emailing otm@ii.co.uk. And in the meantime, you can find more information and practical points as to how to get the most out of your investments on the interactive investor website, ii.co.uk, and I'll see you next week.