BT and the thin revolution

The original share sale of British Telecom stock did indeed start the revolution in wider share ownership, but do not expect the new BT issue to do much to deepen it, whatever its result. Expect a much more potent force in expanding individual share ownership to be the fall in interest rates, and with it the advent of a low-inflation world.

The problem - and for anyone who believes in a society where wealth is both owned and controlled by the widest number of people, it is a problem - is that while the number of shareholders in the country has expanded to a quite extraordinary extent as a result of the privatisation campaign, ownership of shares is still very thin. Lots of people have a few shares in one or two companies; very few have a proper balanced portfolio.

Some numbers will make the point clearer. In 1979 about 3 million Britons owned shares individually. The early privatisations of British Petroleum, British Aerospace, Amersham International, Cable and Wireless and so on had, by 1983, pushed this up to about 4 million. But then came the BT ssue, which added another million in one swoop.

Sid (aka British Gas), BAA, and particularly the quasi-privatisations of the TSB and Abbey National increased the total to 11 million by 1991. But since then the total has slipped back, and is now estimated at only 9.26 million at the end of last year.

By international standards the effect of these issues is to push Britain towards the top of the league in terms of the percentage of the adult population owning shares individually: at 21 per cent, we are lower than Canada, Finland and Sweden, and probably the US, but higher than most others. The share-buying habit is quite widespread.

Wide, but not deep. Out of that band of more than 9 million, more than half own shares in only one enterprise, and another fifth, only two. Nearly a quarter are shareholders only because Abbey National gave 'free' shares to its members, when it converted from mutual to joint stock status.

After each privatisation the total number of shareowners slithers backwards, which suggests that share ownership is not yet securely established as a form of holding savings in many investors' minds.

If one looks at the proportion of shares held individually, the figure still seems to be falling. In 1957 individuals held 66 per cent of UK quoted equities; by 1969 that was down to 47 per cent, and by 1981, 28 per cent.

One might, given the success of privatisation, have expected a reversal from then on. But the fall has continued, to just under 21 per cent in 1989, and to 20 per cent in 1991. The rate of decline does seem to be tapering off, but there is no real evidence yet of a reversal. Intuitively, it ought to be happening soon, but there are no figures to support that view.

The BT offer will probably push the number back up to 10 million. While this may be useful for politicans, it should not be a priority to push the number higher. Most of the people who want to hold shares probably have them. What matters is establishing a balanced portfolio of holdings so that these people share in the general increase in wealth of the community, not just in the fortunes of a few privatised monopolies. The BT issue will not really help.

What will is the relative attractiveness of the alternative. In a way, British savers have had life made too easy. By having the savings network of the building societies on their high streets, complete with a wide range of savings products supported by clever TV ads, they have been spoilt.

True, over a long period building society investments have been much worse performers than an average portfolio of shares - pounds 1,000 in 1980 would have risen to pounds 2,500 by 1992 in a building society, but to nearly pounds 7,500 in an average portfolio of equities. But having money in a building society did beat the retail price index.

But now the world has changed. With the fall in base rates, the opportunity cost of investing in equities is much smaller, and if the investment can be made through a personal equity plan, there are tax advantages.

The closer substitute for a building society savings account is a unit trust or investment trust savings scheme rather than building a portfolio of individual shares. Since the number of self-select PEPs remains small, institutional equity investment remains a more likely beneficiary of falling deposit rates than individual equity investment. Record unit trust sales bear this out.

Still, some funds will be individually held, particularly as the number of self-select PEP schemes increases.

The impact of a lower interest rate environment is not just felt through the deposit side; but also through house prices. If the country comes to believe that houses are an uncertain investment, and the long-term trend in house prices is no longer likely to beat inflation, then there is a strong case for holding a higher proportion of assets in securities rather than property. People accustomed to watching house prices with a keen eye will start to turn their talents to shares, and that would mean individual shares rather than institutional holdings.

To be clear: there is no evidence yet that this is happening. But logic suggests that it should happen. If that logic is right, the best way of encouraging individual investment in equities is to engineer a low inflation climate, so that there will be low increases in house prices . . . and so encourage devices such as self-select PEPs.