A few weeks ago, I wrote about venture capital trusts (VCTs). Some people said I was too hard on them and their managers; others pointed out that I didn’t know the half of it; and several were irritated by the way in which VCTs have been investing in renewable energy projects. If the whole idea of VCTs is to encourage investment in very risky, smaller companies, why have they been able to put money into almost risk-free, state-backed, inflation-linked renewable energy projects?
There’s a double whammy of breaks there – first on the guaranteed cash flow from the renewables, and then on the returns from the fund – at a level that no investment really deserves.
I was just getting around to writing a furious article about this when George Osborne announced in his Budget that he was knocking it on the head, saying he was “concerned about the growing use of contrived structures to allow investment in low-risk activities that benefit from income guarantees via government subsidies, and will therefore explore a more general change to exclude investment into these activities”.
So, there you have it. The government is taking action to end a system that provides a double subsidy on risk-free cash flow to the already well-off. Can’t argue with that.
But here’s the extraordinary thing: the closing of this loophole was not the only outbreak of common sense we saw in the UK last week.
Next up are the changes to Isas. I can’t remember how our current ludicrous system, where you can divide your money between cash and shares, but not move it between the two, came about. It is lost in the confusion of Budgets past. But it clearly makes complete sense that the two types of Isa should be merged, that long-term saving should be encouraged with a rise in the limit, and that the new limit should be a nice round number, such as £15,000.
George Osborne scraps compulsory annuities in a dramatic attempt to help those nearing retirement in his annual Budget statement, allowing people far more freedom to choose what they do with their pension pots
The same goes for the changes to our pension system. It was stupidly complicated, nannying and off-putting. When the changes are in place it will be simple, sensible, non-nannying and, I think, very attractive. More on that here.
For as long as I have been writing about money, I have been wanting the government and the financial industry to do two things.
The first is to make savings and savings products simple: nothing puts people off saving and investing more than it being so complicated that they have to pay a man in a suit to explain to them how to do it. That’s why so many people’s savings end up in cash and buy-to-let property.
The second is to have a go at educating people better about money. To me, that means better mathematical education in school and ‘just in time’ financial education in adulthood. By that, I mean education at the point you actually need it, not decades beforehand when it might be completely abstract.
This is why the introduction of financial ‘guidance’ on the point of retirement is so thrilling. Not only does it show a government that is listening to sensible research, but (assuming its implementation isn’t too much of a shambles), it really does suggest better financial outcomes for everyone.
I know I am sounding oddly positive, but these things have the most chance of changing the way we all run our personal finances in the UK.
That the state is pushing both, while adding in a return to allowing people to take personal responsibility, appears to me to be something of a turning point.
Maybe I need a lie down or a holiday, but I have a feeling that this week may have seen other turning points too.
Mark Carney announced a major shake-up to the Bank of England, and acknowledged that the previous focus on only inflation when setting interest rates had been “fatally flawed”.
Too right – it was the main factor in keeping interest rates too low for too long before the financial crisis. Perhaps that means he won’t use the low consumer price inflation as an excuse for not raising rates even when there is clearly a good reason to do so.
Then there are the interest rate rumblings in the US. There was some confusion about what Janet Yellen actually said in her first press conference as the chair of the Federal Reserve, but it seemed to boil down to this: short-term interest rates could rise around the middle of next year.
Perhaps Yellen’s stance recognises that inflation is likely to be upon us before full employment is, given that wage growth in the US is at a four-year high. And perhaps this will finally do for the mini bubble in the US stock market, which currently relies almost completely on super-low interest rates and quantitative easing for its returns.
If so, it could all demonstrate an outbreak of common sense in the US too – one which just might put much of the Western world on the path to a tiny degree of monetary normalisation.
Now don’t get me wrong; two swallows don’t make a summer. These things are baby steps, and extreme monetary policy is still terrifying. The UK tax system is still a mess and the Budget is still full of pointless tricks.
We still have so much debt, it is all but impossible to see a crisis-free future and a good many of the distortions we have created with quantitative easing (QE) and super-low interest rates have yet to come out in the wash.
But most of the time it can seem that our leaders simply haven’t the wherewithal to have a go at dealing with any of our problems. This week felt a little different.
• This article was first published in the Financial Times.