How things have changed in little more than a decade. Investors are no longer seen as parasites living off past gains, but as responsible individuals building up nest-eggs to provide for their own financial needs in future, instead of living off the state. To speed the process, the then Chancellor, Nigel Lawson, introduced Personal Equity Plans (PEPs) at the beginning of 1987.
In keeping with their new status, investors have also been given tax- free status on money held on deposit in special Tax-Exempt Special Savings Accounts (Tessas), and since last month anyone with a taste for a bit of speculation can buy both shares in UK and EU companies and bonds issued by UK companies, and hold them in a PEP, on which they pay neither income tax on the dividends nor capital gains on any profits.
Any investor over 18 can start a PEP by investing up to pounds 6,000 each financial year in a portfolio of shares or bonds in companies quoted on the Stock Exchange, and managed like unit trusts by a professional manager. The investor pays the manager through an initial charge deducted from the first investment, or sometimes a withdrawal charge if the PEP is sold within, say, five years, plus an annual management charge, which can be deducted either from the capital value of the fund or from the dividend income.
In addition, investors can buy up to pounds 3,000 of shares or bonds in a single company and hold them as a "single-company PEP". Many PEP managers also operate savings schemes that allow investors to invest smaller sums over a regular period.
Unlike Tessas, which have to be maintained for five years to retain their tax-free status, investors can pop investments in a PEP and sell them again without paying tax on either income or the capital gains they have already made, although most PEP managers recommend investing for at least three years to minimise the risk of having to sell when stock markets are depressed.
Although they appeal mainly to sophisticated investors, willing to contemplate the possibility of loss, share PEPs have attracted almost pounds 20bn since they were introduced, including pounds 5bn in the peak year of 1993.
Until now, of course, investors could only hold company shares in a PEP, and although shares historically have gone up more often than they have gone down in value, we know from investment health warnings that they can go down in value at any time. This makes them unattractive to investors who do not want to runthe risk of losing capital at any price, and do not want to wait for losses to be recouped.
And in any case, the dividends on a sum of money invested in shares tend to be less than the interest on the same sum of money invested in a bank or building society. After tax, the dividend on a typical share at present tends to be around 4 per cent of the share price. Even if the share is held in a PEP, the yield will typically be only around 5 per cent. On shares expected to show the fastest capital gains, the yield will be smaller still.
In practice, PEPs have tended to appeal to investors looking for long- term growth, and to higher-rate taxpayers who appreciate the chance to save 40 per cent tax on their investments. Anyone looking for income alone would still go for a Tessa bank or building society deposit or a guaranteed income bond.
Government stocks and loan stocks issued by companies, usually knows as corporate bonds, were not eligible to be held in a PEP until 6July, ostensibly because they already offered higher dividends than shares and investors could not expect most of the advantages and few of the risks of an investment in business, and tax breaks on top of that..
But companies have long complained that they had to rely too much on issuing shares or borrowing from banks to raise capital. UK companies have always been able to issue bonds just like the government, but in inflation-ridden Britain, the interest they have had to pay on bonds has often been uncomfortably high. In recent years, many foreign companies have raised capital in sterling by issuing Eurosterling bonds offshore, but these are traded in multiples of at least pounds 100,000, which in effect prevents the issuers from tapping into individual UK investors.
As anyone who takes even the most cursory glance at the personal finance pages, or discusses investments in the saloon bar or the club will know by now however, the Chancellor decided last year to lift the limitations and allow investors to hold Corporate Bond PEPs, containing fixed-interest securities instead of shares. For at least the past three months, fund managers, financial advisers and the financial pages have talked of little else. At least three dozen managers have launched corporate bond PEPs, either by starting up new funds or by "wrapping" existing fixed-interest unit trust funds in PEP guise.
Each fund has its own character, and fierce arguments have developed over the pros and cons of different types of funds, different ways of charging fees and whether to buy now or wait and see what else turns up. We try to sort out some of these issues.