Saving sustainably

We already encourage saving - why not encourage sustainable saving instead?

The post-Budget row over tax relief for charitable giving has obscured the fact that there are many tax reliefs given for profitable activities without any consideration for the public benefit of the activities being effectively subsidised. Around £40bn a year of relief against income or capital gains tax goes to support pension saving, ISAs and protect individual gains from the sale of residential property. In times of austerity shouldn’t we be looking more closely at how this money is used? Could the Government use the policy leverage created by such subsidies to encourage more responsible behaviour in the financial sector that benefits the taxpayer as well as the individual investor?

Britain’s economy before the credit crunch was based on high borrowing to fuel increasing consumption which drove economic growth. As individuals we didn’t save enough for our own financial security, and as a country, we haven’t invested enough in our economic future. To face the long term challenges to our economic prosperity like an ageing population or climate change, we will need a more resilient economy that has far stronger foundations of savings and investment.

So what happens to the money that we combine with the tax subsidy in order to save for the future?

Well, we know that pension funds and institutional investors place much of this in the stock market, but the evidence shows that more and more of this capital is used for high frequency trading rather than long term investing. Andy Haldane of the Bank of England is one high profile regulator who is very concerned with this development. Cash placed in ISAs earns a very low rate of interest and, in as much that these funds bolster bank balance sheets and help fund lending to the economy, we also know that the majority of such lending actually funds property loans and financial speculation. Less than 20 per cent of UK bank lending goes to the productive economy of growing businesses. Finally we know that fees and charges in the investment and banking sectors are notoriously opaque, and competition is far from perfect.

So there is an understandable lack of trust in the finance sector, yet the government has to find a way to convince the public not just to save more, but channel those savings into productive investment. One way to do this is for the government to be more explicit about encouraging savings and investments that apply responsibility criteria and enhance social and environmental well being, as well as financial returns. Moreover, it should be using the existing subsidies to enforce this principle. In an era where all subsidy has to be made to work harder for the public interest, there should be a principle that, in return for tax relief, savers and investors should be able to demonstrate a contribution to the public good. This will not be easy to do, but there is a growing set of voluntary standards and codes of practice which investment organisations can apply to demonstrate they are taking a responsible approach, looking a long term interests, not just short term profits.

In my recent report for Green Alliance, Saving for a sustainable future, I make the case for these principles to be used in public policy and set out a few ways in which it could be applied:

  • Pension tax relief could be made conditional on responsible standards being applied.

  • Banks could only be able to offer tax-free Cash ISA accounts if they could demonstrate responsible and transparent lending practices.

  • Capital gains tax relief for the sale of a residential property could be made conditional on certain energy efficiency improvements being made to the building.

There is political consensus on the need to rebalance our economy and reshape British capitalism in way that better incorporates the values of society. Applying these ideas to existing taxpayer subsidies is a good start.

Green - well, yellow - Britain. Photograph: Getty Images

Chris is an independent environmental policy consultant working on sustainable finance, climate change, energy policy and the green economy. He is a fellow of the Finance Innovation Lab, and an associate of Green Alliance, where he has written on the Green Investment Bank, environmental tax reform and sustainable savings policy.

He was previously head of Climate Change at the Environment Agency and senior research fellow for sustainability at IPPR. Follow @chrisjhewett on twitter.

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Donald Tusk is merely calling out Tory hypocrisy on Brexit

And the President of the European Council has the upper hand. 

The pair of numbers that have driven the discussion about our future relationship with the EU since the referendum have been 48 to 52. 

"The majority have spoken", cry the Leavers. "It’s time to tell the EU what we want and get out." However, even as they push for triggering the process early next year, the President of the European Council Donald Tusk’s reply to a letter from Tory MPs, where he blamed British voters for the uncertain futures of expats, is a long overdue reminder that another pair of numbers will, from now on, dominate proceedings.

27 to 1.

For all the media speculation around Brexit in the past few months, over what kind of deal the government will decide to be seek from any future relationship, it is incredible just how little time and thought has been given to the fact that once Article 50 is triggered, we will effectively be negotiating with 27 other partners, not just one.

Of course some countries hold more sway than others, due to their relative economic strength and population, but one of the great equalising achievements of the EU is that all of its member states have a voice. We need look no further than the last minute objections from just one federal entity within Belgium last month over CETA, the huge EU-Canada trade deal, to be reminded how difficult and important it is to build consensus.

Yet the Tories are failing spectacularly to understand this.

During his short trip to Strasbourg last week, David Davis at best ignored, and at worse angered, many of the people he will have to get on-side to secure a deal. Although he did meet Michel Barnier, the senior negotiator for the European Commission, and Guy Verhofstadt, the European Parliament’s representative at the future talks, he did not meet any representatives from the key Socialist Group in the European Parliament, nor the Parliament’s President, nor the Chair of its Constitutional Committee which will advise the Parliament on whether to ratify any future Brexit deal.

In parallel, Boris Johnson, to nobody’s surprise any more, continues to blunder from one debacle to the next, the most recent of which was to insult the Italians with glib remarks about prosecco sales.

On his side, Liam Fox caused astonishment by claiming that the EU would have to pay compensation to third countries across the world with which it has trade deals, to compensate them for Britain no longer being part of the EU with which they had signed their agreements!

And now, Theresa May has been embarrassingly rebuffed in her clumsy attempt to strike an early deal directly with Angela Merkel over the future residential status of EU citizens living and working in Britain and UK citizens in Europe. 

When May was campaigning to be Conservative party leader and thus PM, to appeal to the anti-european Tories, she argued that the future status of EU citizens would have to be part of the ongoing negotiations with the EU. Why then, four months later, are Tory MPs so quick to complain and call foul when Merkel and Tusk take the same position as May held in July? 

Because Theresa May has reversed her position. Our EU partners’ position remains the same - no negotiations before Article 50 is triggered and Britain sets out its stall. Merkel has said she can’t and won’t strike a pre-emptive deal.  In any case, she cannot make agreements on behalf of France,Netherlands and Austria, all of who have their own imminent elections to consider, let alone any other EU member. 

The hypocrisy of Tory MPs calling on the European Commission and national governments to end "the anxiety and uncertainty for UK and EU citizens living in one another's territories", while at the same time having caused and fuelled that same anxiety and uncertainty, has been called out by Tusk. 

With such an astounding level of Tory hypocrisy, incompetence and inconsistency, is it any wonder that our future negotiating partners are rapidly losing any residual goodwill towards the UK?

It is beholden on Theresa May’s government to start showing some awareness of the scale of the enormous task ahead, if the UK is to have any hope of striking a Brexit deal that is anything less than disastrous for Britain. The way they are handling this relatively simple issue does not augur well for the far more complex issues, involving difficult choices for Britain, that are looming on the horizon.

Richard Corbett is the Labour MEP for Yorkshire & Humber.