Restoring the trust in saving

THE BIG names of the British insurance industry from Legal & General, Prudential, Aviva and the rest were assisting the Treasury Select Committee of MPs with its inquiries today, in the hope that they could come up with ideas that would help restore trust in Britain's savings industry.

At least that was the theory, but much of the time was devoted yet again to the endowment mortgage mis-selling saga - how it happened, who was to blame and so on - with the hatching of solutions to the savings crisis deferred to another day.

If trust is indeed the issue, raking over the old coals of endowments is not going to help restore it. Within the mores of the time, the policies were for the most part sold fairly - not as they would be now, perhaps, but that is because attitudes have changed.

If forecasts for growth turned out to be too optimistic, it was because the regulator laid down the growth number on which forecasts should be based so that customers could see easily which companies had the highest costs. If the growth projection now seems too high, that again is a judgment formed by hindsight.

Though people do not think of it in these terms the endowment problem is an example of how debt is not eroded if there is no inflation - albeit the erosion was expected to come from nominally high returns on the endowments. It is the same problem the FSA constantly alludes to today when it warns that people do not have inflation to help them with their currently incurred debts. Not that anyone appears to be listening.

Assuming the Select Committee wants to make things better rather than simply allocate blame, there are a few simple things it should ask the Government to deal with. First, it has to get rid of means-tested benefits because they discriminate in favour of the feckless and against those who have been responsible, destroying the incentive and economic rationale for saving for old age. Second, it should put in place a genuine tax incentive to compensate for the fact that pension saving is locked up for years.

If every pound an employee put into a pension was matched by one pound from the employer and one pound from the State it would do the trick - or at least get us moving in the right direction.

Attitude problem

THE DAY Chancellor Gordon Brown was filling the Queen Elizabeth II conference centre with politicians, big businessmen and assorted gurus to see what could be done to foster a new generation of young entrepreneurs, I had lunch with one of the most conspicuously successful of the breed, Brent Hoberman of lastminute.com.

He had not been invited to the Chancellor's shindig but, asked what would help more people like him get started, he said a reduction of regulation would certainly be a plus, as would a more positive attitude in the media, among many politicians and the public at large towards those entrepreneurs and business people who were successful.

His company was a media favourite until he and his then business partner Martha Lane Fox successfully floated on the stock market, raising almost enough money to bail out Leeds United. But once they had that success on their hands, the mood changed and became personalised and carping.

That's the problem Brown really needs to face. The British are not genuinely capitalist. They want the benefits of capitalism and prefer it on balance to other forms of economic organisation, but they don't really believe in it. There are still too many who hold as an article of faith that old money is superior to new money but are nevertheless jealous of the success those with new money have - if only because it poses a latent threat to the status quo.

On the other hand, those without money old or new implicitly resent the ability of the monied to perpetuate themselves in positions of privilege. The result is that the self-made entrepreneur gets little credit for his or her achievements. Rather they are met on one side by condescension and envy and on the other by the insinuation that it is somehow unfair that they should be so well off.

People say these old attitudes are breaking down, and certainly the Sunday Times' annual rich list has a lot more business names in it now than when it started a dozen or so years ago. But unless business success has been achieved without effort and in a distinctly amateur way there is hostility to it in this country - a hostility that some of the Chancellor's colleagues have been known to exploit for political advantage. And it is perhaps the major reason why bright young people will play safe and join a profession rather than take the plunge and start a business.

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