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Spend & Save

Julian Knight: Suffer the little children ... just invest in Africa

The new junior individual savings account announced by Alquity is a real eyebrow-raiser

It's rare in the heady, exciting world of personal finance (irony alert) that a received email is genuinely eyebrow-raising. But the one I had from Alquity announcing the launch of a junior individual savings account (JISA), which invests in African companies, was such a moment.

Few financial firms make a fist of African equity investment. Fund management group New Star, for instance, had to close its Africa fund a couple of years ago due to poor performance and lack of liquidity – which in simple terms means you can't effectively buy and sell stocks.

I was told by one fund management firm which has a track record of emerging market investment, that when its team visited a raft of central African countries the domestic stockmarkets shot up in value on the news of their arrival.

In short, they felt the locals were marking up their prices in the hope some investors from abroad were about to sink some cash. Values were purely based on sentiment and whether new cash was about to enter the pyramid.

Now there are some reasons for African investment – namely a young population and a growing consumer sector – and Alquity promises to sink some of its management fees into local development, giving the investment an ethical wash.

But demographic and consumer good news can be found elsewhere without the political instability, currency risk and liquidity issue.

What's more, a JISA is an investment for your offspring so do you really want to put it at such great risk? Invest in Africa by all means, but best leave the kids out of it.

Milking the saver

For British savers it's been a painful three years. In order to kick the can of unsustainable personal and sovereign debt down the road just a little bit further, savers have had record low rates of return foisted upon them.

Monday is the third anniversary of the Bank of England's rate cut to 0.5 per cent, yet we seem further than ever away from a genuine market in loans and savings.

Savers get less than 1 per cent on average so that borrowers can get rates which are far below what, at this point in the economic cycle and in a world of robust inflation, they should be getting.

This is all in the interests of economic growth, but there is none of that around. Nevertheless, savers continue to be milked. In the three years we have had rates at 0.5 per cent, I estimate a saver with £50,000 has, on average, seen the spending power of their cash pile cut by around £6,000.

With some analysts pushing the next rate rise out another two years, heaven knows how little your cash pile will be worth.

Keep the 50p top tax rate

Don't get me wrong, the 50p top rate of income tax is the worst type of policy: it was designed with pure politics in mind – a ruse by Labour to put the Tories in a difficult place at the 2010 election – and what's worse it makes no economic sense.

Over a certain level of tax you get avoidance deployed and people are not motivated to earn more. As a result tax take goes down. In fact, the latest self-assessment figures suggest the 50p rate has actually led to a fall in revenues of £500m so far.

But putting aside its pernicious nature, the 50p tax should actually stay for another year or two because, put simply, at a time of austerity, continued fury over banker bonuses and potential social unrest, to roll back the top rate of tax will be seen, wrongly, as a sop to the so called fat cats.

This will only exacerbate the feeling that we are far from "all in this together", and over the coming years we are going to need ever bit of cohesion we can muster.