FEAR OF FINANCE

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The Independent Online
Witchcraft is alive and well, flourishing in our modern life under the seemingly innocent cover of the accountant, stockbroker and banker.

Wander into any office and you can see these latter-day warlocks and witches muttering incoherent recipes over the "Compac" cauldron. We sit in wonder as they prepare their strange concoctions. They grin at us in the complete knowledge that we are in their hands and have not got the foggiest idea what they are on about.

A typical spell goes like this: "Put in a SCP and a CBP, use an EIS with a VCT then a general PEP and finally top it up with a Tessa'' (see below for interpretation). We are in awe and left with the strange feeling that part of our wallet may have abruptly dematerialised.

And then the final part of the spell. "This is for your own good. Take it regularly for your own protection." We are already under the influence and nod in supplication.

This sad scenario is acted out all too often. For the pinstriped wizard is merely reciting the tax-saving mantra as laid out by Her Majesty's Treasury.

Over the past decade, the Government has introduced a series of important initiatives designed to encourage us to invest for the long term. This is not altruism, but to help us prepare for our own future in an uncertain world when state pensions, among other things, will be increasingly difficult to sustain.

So why can't we understand any of it? We are provided with a flood of acronyms and a set of instructions that would have been more use to a passing Visigoth.

This is because the initiatives have been constructed backwards, from the technicians' point of view rather than from that of the user. The result is that we cannot take advantage of these tax-efficient investments because we don't understand them and are worried we are about to be ripped off.

If you do manage to take the plunge, you can end up with a combination of three or four acronyms, three or four sets of charges and an avalanche of paperwork.

The tax-saving facilities should be redesigned so that we can understand them. This could be achieved by rationalising what is on offer into a logical and more understandable range. If the Government wishes us to save and invest for the long term, then let us have a single straightforward tax-free account with which to do it. The Treasury can then direct the proportions it wishes to see in this account, to include, say, cash, shares, government gilts, smaller companies or whatever.

This would be simpler to understand and would mean less paper. And with only one administration charge, very likely cheaper.

However, there would still be the financial services industry to deal with. And it does likes to swathe itself in a mystic haze to retain its air of secret knowledge and power.

Beware the charlatan. The rule is this - if you don't understand it, don't buy it. If the charlatan suggests you are going to save money, ask what is in it for him or her and what happens if it all goes wrong.

There is a very good way to smoke out a charlatan. Just ask whether the suggested PEP is affected by your W12 8BW. If he looks serious and tries to explain the rationale behind this benefit, get up and walk out. If he or she recognises it as a postcode, carry on.

Oh yes.

SCP: single company personal equity plan, pounds 3,000. Tax free.

CBP: corporate cond personal equity plan, pounds 6,000. Tax free.

General PEP: general personal equity plan, pounds 6,000. Tax free.

EIS: enterprise investment scheme.

VCT: venture capital trust.

Tessa: tax exempt special savings account.

Justin Urquhart-Stewart is business development director at Barclays Stockbrokers

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