Rafe Fletcher: Why Britain doesn’t invest, and how to fix it

Rafe Fletcher is the founder of CWG and writes The Otium Den Substack

Deferred gratification is a hard sell, especially when it comes to money. In politics, it’s easier to offer the electorate something now than greater, but uncertain, future rewards. A short-term bias that I’ve written about recently.  

Singapore’s solution is an implicit bargain that trades minimal scrutiny for long-term delivery. But it’s not always harmonious. The Leader of the Opposition was recently removed under accusations of lying under oath. Reported but not dwelt upon in the state-controlled press, Facebook reveals undercurrents of discontent. A local commenter accuses the ruling People’s Action Party (PAP) of playing politics rather than addressing the cost of living.   

The PAP’s economic record looks pretty sound on paper. GDP per capita has doubled since 2000 to around $90,000 today. But it matters little if people don’t feel they’re getting wealthier. I saw the investor Bill Ackman address that issue at a conference in Singapore last week, giving the American context. His only criticism of President Trump was around proposals for credit card fee capping. A policy error born of the need to win support ahead of the November midterms, Ackman argued.  

Short-term catnip is offered up because a buoyant stock market does not impress Americans without 401ks (America’s personal pension scheme). Ackman says it makes them actively resentful of other citizens’ growing wealth. And that situation is even more perilous in Britain. Around 60 per cent of Americans are actively invested in the stock market, while barely a quarter of Brits hold shares outside their pensions. It leaves Brits mostly unaware of what they’re invested in and how that portfolio is performing. Americans feel some control over their financial future. Brits don’t.  

This breeds a zero-sum approach to money that manifests in pernicious ways. The first takes the form of policies that assume a settled pool of capital and aim to redistribute, like corporate tax hikes or Labour’s new Employment Rights Act. The second is an unhealthy attachment to property, an asset class which relies on scarcity. As Mike Bird argues in his excellent new book, The Land Trap, it’s impossible to achieve mass home ownership and constant rapid increases in the value of land. 65 per cent of Brits are homeowners and, for many, that asset constitutes their sole sense of financial security. No wonder politicians are so afraid of meddling.  

This real estate obsession obscures the positive-sum – one person getting it doesn’t mean another losing out – opportunities in the stock market. In his Reform defection speech, Robert Jenrick highlights that British houses cost more than in any other OECD country. But how many people know that a 30-year investment (from 1993 to 2023) in the FTSE All-Share Index, with reinvested dividends, yielded a 630 per cent return? In that same period, average house prices rose by 427 percent. The latter a product of what Bird calls the “good fortune to buy in a particular place, at a particular time”. The former is a predictable result of patience and discipline.  

The first step in fixing this is education. Ackman talked approvingly of America’s new “Trump Accounts” for newborns. The government credits $1,000 to these accounts when opened by parents. Additional deposits can then be made directly by parents or their employers (for whom it will be tax deductible). Deposits must be invested in an American stock index. Using average historical returns, The Council of Economic Advisers (CEA) estimates that balances will be worth over $18,000 for babies born in 2026 by the time they are 28 if no further deposits are made. It could be over a million dollars with maximum contributions.  

Based on a liberal estimate of 700,000 births in Britain each year, a similar British scheme would cost about £525 million a year if we assume 100 per cent take up and no eligibility criteria. Even then, it’s a rounding error in government budgets and about 25 per cent of annual spend on Winter Fuel Payments. Account holders, who can’t touch the funds until they’re at least 18, would see what compound investing can achieve.  

Driving awareness of these market forces can change British attitudes. Most importantly when it comes to pensions. Maybe I’m particularly disorganised but I don’t even know where my pension holdings are from my time working at British companies. Employers choose schemes, not employees, so every new job creates a new pension pot. There is no visibility or agency, and performance is often poor. The Times reports that one provider delivers just 1.7 per cent annual returns. It is recklessness disguised as caution given that almost any tracker fund would deliver something far better.  

Australia is one example Britain should look to for ideas. Ackman spoke warmly about its superannuation system, predicted to become the world’s second largest savings pool by 2031. It already has more retirement savings than any other country per capita. Employers must pay 12 percent of employees’ salary into their respective funds. Australians see this as an immediate credit into their investment accounts, as part of a strategy they pick. Compare that psychological effect to Brits seeing pension deductions sit alongside tax on pay slips, with little awareness of where that money is going or what it is doing.   

Coming back to Singapore, it’s also worth looking at its Central Provident Fund (CPF). It offers the transparency Britain so sorely lacks in that one account follows you around and balances are viewable at any one time. But it’s also sui generis. Singaporeans can use CPF to buy state-subsidised homes. They’re also a way of protecting citizens in the absence of a comprehensive welfare system. So lower taxes are offset by the need to fund one’s own healthcare and retirement. Consequently, CPF returns are guaranteed by the government, which invests this large pool of forced savings in its sovereign wealth funds. The downside is these set returns can lead to the latent rumblings I referenced at the outset. People can always ask why this paternalistic approach shouldn’t grant them higher rates of returns, especially if inflation is running hot.  

Britain’s own investor-society needs more agency than this. Rising house prices are a lottery. Buy a one up one down in Hackney 30 years ago and own a multi-million-pound asset today. But the stock market rewards prudence and planning. Let workers see the rewards of compound investing and you change an entitlement culture. It’s no longer about sharing scarce resources but building something bigger. Deferred gratification becomes possible to sell again.