8th April 2013
For investors, the longest lasting legacy of Margaret Thatcher is arguably the creation of the personal equity plan introduced by her Chancellor Nigel Lawson in 1987.
The Pep was created as part of the Thatcher credo of popular capitalism, and among other things was a tax efficient home in which to hold the shares of newly privatised companies, as the Thatcher revolution accelerated.
Peps could, of course, be used to house a single company investment but what they really succeeded in doing was introducing people to the habit of making a substantial annual investment in funds, whether unit trusts or investment trusts.
Investors who have made sure they regularly took up all or at least most of their Pep allowance each year, are likely to be very well off indeed, these days. If more people had got into the habit of doing so, we would be a lot better of as a country.
The Tessa, a bank account version, was introduced by John Major in his brief stint as Chancellor just before Lady Thatcher’s fall from power.
The Pep and Tessa was replaced by the Isa regime by New Labour in 1999. The stocks and shares version became less generous with the abolition of dividend tax credit regime, especially hurting non-taxpayers, but the basic principle of a tax wrapper allowing savers and investors to shelter a certain amount each year was preserved.
It is no surprise that the Isa allowance has increasingly been more generous now that we have a Conservative led coalition in power as it represented one not insignificant detail of Thatcherism.
It is one legacy that will not provoke too much debate, except among the more ardent left wingers who would like to see a great deal more state ownership of the economy.
Of course, it was during the Thatcher years, that the City of London lost many of the final vestiges of the old boy network, though some would argue for all their downside, they kept the lid on some of the less appealing aspects of stock market and indeed financial market exuberance.
Financial adviser Brian Dennehy of Fundexpert.co.uk give this unflinching assessment describing a slightly more roller coaster ride than is sometimes recalled. He writes: “The 1980s was a time of recovery, for markets in particular and capitalism generally. In contrast, the 1970s for the UK had been a time of huge turbulence, politically, economically, socially, and there were painful adjustments for many older industries and the communities which relied on them (which continued some way into the 1980s).
“By the 1980s, the stock market was prepared to look beyond the continuing political turbulence, and social pain, and rose very sharply from 1982, celebrating a new era led by Ronald Reagan and Margaret Thatcher (elected Prime Minister in 1979). The big idea was that Governments were to shrink and capitalism was to be allowed to flourish. Individualism and greed were good.
“We mustn’t forget Sid. Shrinking the Government and popular capitalism combined to create an era of privatisations, selling off publicly-owned assets. In 1984, amidst massive publicity, British Telecom was sold off. Two-fifths went to the general public, mostly novice investors, and on 20th November 1984 there were 2.1 million new budding capitalists enjoying an investment which doubled in value on the first day.
“Returning to Sid, by 1986 it was the turn of British Gas to be privatised, the most ambitious to date. To encourage participation the slogan was invented: “If you see Sid, tell him”. Four million applied for shares, 1.5m received an allocation, and many sold within the first few days for another handsome profit.
“A new generation of individual investors enjoyed regular windfalls, and, importantly, they were also increasingly confident as consumers. The growing confidence also spread through the board rooms of the UK. There were plenty of predators from Hanson to Polly Peck. Animal spirits abounded, a necessary ingredient for any budding mania worthy of the name.
“After a Spring 1987 election, Margaret Thatcher was comfortably re-elected, following another “Budget for equities”. The stage was set for the stock market Crash. The Thatcher and Lawson double act then also set up the property bubble and Crash, straddling the end of the decade. (She left office in November 1990)
“By the time she left power capitalism might have been revived, but there were plenty of scars too.”