Retail Investment

Debate between Kanishka Narayan and Anna Dixon

Tuesday 22nd April 2025 Westminster Hall

[Kanishka Narayan (Vale of Glamorgan) (Lab)]

It is a privilege to speak with you in the Chair, Mrs Hobhouse. It is a particular privilege to follow my hon. Friend the Member for Buckingham and Bletchley (Callum Anderson), who secured this debate and led it with expected expertise. I know that he brings a great deal of professional experience from his career prior to this place. It also a privilege to see the Economic Secretary to the Treasury in her chair. I know that she also brings vast expertise and experience to this debate from both her time in this place and prior to it. For those reasons, I will humbly keep a short focus on five particular segments of potential retail investors in my remarks.

My hon. Friend the Member for Buckingham and Bletchley was very accurate in noting the focus of the debate. For me in the Vale of Glamorgan, as will be the case for many other colleagues, the focus must be on ensuring that individuals can not only accumulate prosperity through retail investment but ensure dignity, and that is the first segment of particular interest. For millions of households, retail investment is a question of saving up for a rainy day. For many households in the third decile of wealth in this country, with average net financial savings of about £1,500, the path to retail investment is through a low-cost—or hopefully even a zero-cost—accessible money market or index fund. The fundamental focus for those individuals is on how we support not just the right level of interest rate provision from our retail banks, which is absolutely necessary, but the advantages of technology in distributing index funds in a way that is accessible and understandable to many of those households.

The secondary category is novel in its composition: the young in this country. While about 39% of adults in this country have invested actively, an overwhelming third of those started during the pandemic. The vast majority of those who started in the pandemic and afterwards are aged between 18 and 34. The patterns of behaviour in that category are radically different from others across the country: 58% of 18 to 24-year-olds hold cryptocurrency as their primary asset holding; among those aged between 55 and 65, holdings in that asset class are negligible. Cash ISAs are not particularly prominent for those young individuals at the moment. For them, the interesting and salient question is how to make sure that we have a bridge to wider responsible investing across asset classes, which builds for the long term, alongside doing what they want in holding cryptocurrency or other assets.

The third category is critical to the nation’s future and private investment in this country: those who do not invest in equity today. My hon. Friend the Member for Buckingham and Bletchley has come up with a series of good practical ideas on supporting them into equity markets, but given that most of our financial assets up until the seventh or eighth decile of wealth lie in pensions rather than direct financial assets themselves, I feel that pensions will be the primary gateway to ensuring that retail investors have a bit more of a say in allocation that supports the country’s long-term goals.

In the United States a 401(k) culture of people being able to exercise discretion in what happens with their pensions has led to a radical shift in retail holding in equities in particular. The Economic Secretary to the Treasury has been at the frontier of making reforms to our pension system in her prior role and now as well. In addition to supporting funds, shifting their allocation, really pushing ambition on the implementation of the pensions dashboard and in the movement to open pensions, the data, transparency and empowered control that will help many of us to make greater moves into supporting British and wider businesses is fundamental.

[Anna Dixon]

My hon. Friend makes excellent points about the older generation and their decision making on what to invest in. At the moment older people are often over-saving, particularly in cash ISAs or very low-risk products, because of the lack of funded social care. They are having to hold on to a lot of cash just in case they need to pay for care. Does my hon. Friend agree with me that better advice is needed for pensioners to make retail investment decisions, and a better range of products is needed that will deliver them security in old age in terms of social care, but also the returns in pension income?

[Kanishka Narayan]

Yes, absolutely. My hon. Friend speaks with a great deal of expertise on this and on the wider question of how we support people with care needs. She is exactly right.

I would be interested in how we support a market in the advice context that goes all the way from what I think the guidance on the boundary of the advice market will do, which is support people getting into the advice context in the first place and ultimately into the regulated part of that market. Again, as a fervent believer in what a reduced cost of delivery through technology can do, I think there is a huge amount of progress to be made in finding different sources of advice for different sets of people. Pensions are a primary point of leverage as we think about where we can make a mark in supporting greater retail investment.

There is a fourth, really important category of those who invest in equities, but do not invest as much in British equities. It is worth distinguishing them from those who do not invest in equities altogether. My broad suggestion there is that we focus as much on the pull as the push and think about why it is that when people in Britain invest in equities, they are not investing as much in British equities. It is very clear that North American funds have had very material inflows over the course of the last decade, compared with actively managed UK funds, which have had outflows since 2016. UK-based index funds also had outflows in the two years prior to 2023. It is probably not surprising that it is in large part down to the returns profile.

If someone invested in the MSCI USA Index, they got a 303% return over the last decade. Return in the MSCI World Index was 213%. If we look at the pattern of retail investment in US companies, we see that it is the highest growth, highest returning and often in some ways the highest engagement companies that get the greatest inflows. Some 30% of retail holdings in the “magnificent seven” tech stocks, as they are labelled, are radically lower in the rest of the S&P. Given that the median age of our top 10 companies in the FTSE is about 150 compared with 40 in the US top 10, it is probably not surprising that people do not feel as captivated by the possibility of investing in Britain.

When we think about retail investment in British assets in particular, we need to think about what we are asking people to invest in and make sure that the wider set of economic reforms that we are focused on are driving at pace a sense that technology and renewable energy—things that build the country’s future—grounded in communities like Hexham and the Vale of Glamorgan are the assets that we support people to invest in.

My final point is close to my heart as a Labour politician, which is that retail investors’ primary experience of a company is the company that they work in. There is a cause here that ties together the cause of worker dignity, worker engagement and retail investment for prosperity. It is a cause close to my heart from the technology sector, because the one thing that has been so remarkable about it globally has been the ability of the technology sector to create prosperity through employee stock ownership. I humbly suggest that the Government consider adapting a very successful enterprise management incentive scheme for employee stock ownership, to make it more attractive in the modern world of technology and artificial intelligence companies.

I am conscious that I have whizzed through those five categories, but at the heart of the issue is a fundamental focus: in supporting both the prosperity and dignity of people in the Vale of Glamorgan and across the country, retail investment will be fundamental.