The Chancellor offers us a Sip, but he needs to pore over different measures

Gordon Brown earned well-deserved criticism after his all-too-casual relaunch this week of the cumbersomely named all-employee share option plan as the more nattily labelled share incentive plan, or Sip. Incredibly, taxpayers' money was spent on research to discover we would welcome a new name that is simpler to use.

The Chancellor of the Exchequer is a busy man, particularly at this time of year with the pre-Budget statement to come this month, never mind the implications for public finances of the 11 September atrocities. But if something is worth doing it is worth doing well, and he missed a supertanker's worth of opportunities at least to hint at updating Sip.

Instead he made do with the usual banalities about Sip being "a key component of the Government's productivity agenda ... blah, blah ... no better incentive for employees than for their work to be recognised and for them to share in their firm's success ... blah, blah ... employee share ownership is a milestone in removing once and for all the old 'them and us' culture in industry."

You get the picture. You could almost see Mr Brown looking at his watch as he was speaking, pausing only to duck awkward questions about the poor employees who were suckered into buying Railtrack shares on preferential terms.

Sip was introduced in last year's Budget to let companies give employees up to £3,000 of free shares, and they can buy up to £1,500 of shares out of pay before tax and National Insurance contributions, for which employers can give matching shares. These investments have to be held for five years to escape tax.

These terms are based on, but are deliberately meaner than, similar schemes in France and the US. This is typical Scrooge-like Treasury and Inland Revenue thinking, fearful that folk might abuse the tax privilege and we might poke fun at our elders and betters for getting it wrong.

The most obvious improvement to Sip would be to raise the limits and to express them as a percentage of salary rather than a flat sum. The French version allows employees to invest up to a quarter of their salaries on their employer's shares.

Second, the Chancellor should cut the qualifying period from five years to three. Staff turnover in industries such as catering and retailing is so high most employees will never stay with one company long enough to cash in tax-free. And why is it five years for Sip while save-as-you-earn and approved profit-sharing plans have only a three-year lock-in, and the popular enterprise management incentive lock-in is about to come down from four years to two?

Third, remove the potentially vicious penalties on companies whose employees cash in early. The employee loses the tax relief, which is fair enough, but the employer has to pay back the National Insurance contributions as a percentage of the selling price. If, as in some cases, the shares rocket and lots of workers are tempted to sell, the company can have to pay hundreds of thousands of pounds.

That is not a problem for the Railtrack staff, which points to one important lesson: never, but never, invest solely for tax reasons. If your company offers you a Sip, assess it as if you were buying the shares of any other company. There is a strong case for not investing in your employer, because it runs counter to the idea that it is better to spread your risk. There have to be good reasons for ignoring that principle, and not just the fact that you are going to save tax.

* In the present era of low interest rates, savers are prey to artful fund managers who headline attractive payments and make the snags less apparent. Travellers on the London Underground may be arrested by a Royal SunAlliance advertisement asking in very large lettering whether you would like an investment that pays 10.1 per cent. A no-brainer, unless your eye wanders down to the bottom of the ad, where you find the almost offhand remark that you "should be prepared to accept some risk to your capital".

The trouble is that, while the interest rate is quantified, the risk is not. So potential investors are left in the dark about what is, in fact, a bond investing in corporate bonds; perfectly respectable, but that is no way to sell it responsibly.

The other offenders are the so-called protected investments, described accurately this week by the advisers Deep Blue Financial as "smoke and mirrors". As Deep Blue rightly points out, there is often a hefty price for the protection, possibly by linking the investment to risky stock market indices. To some extent, invest- ors have only themselves to blame for these complex products, for they have been prompted by market research showing that people want guaranteed income, a stake in the stock market and the assurance of a minimum return on their money.

These three features are not quite incompatible, but they have forced the back-room nerds to spend many an hour playing with computer models to come up with products that fit. The result is these products are extremely complicated, and it can be easy for inexperienced investors to skate over the risks they are taking. It comes back to one very straightforward rule: if you do not understand it, do not buy it. Better to split your money between gilt-edged stock and a handful of blue-chip shares if you want both guaranteed income and exposure to the stock market. At least then you will know where you stand.

* I wonder if Tim Steer knows exactly where he stands these days. He is the fund manager for the dazzling New Star group's latest effort, called its Aggressive fund, but this week he admitted he would be investing in defensive companies with conservative balance sheets.

The name was always going to be out of its time after 11 September, and the only surprise is that John Duffield, New Star's founder, was not nimble enough to recast his latest baby. Even if we have seen the bottom of the stock market and a raging bull is already pawing the ground, the mood is more sombre. Aggression is out. Tasteless. Too violent.

Instead Mr Steer has been steered towards construction, building materials, retailing, food and pharmaceuticals. Technology, media and telecoms will be shunned.

Not so aggressive, then.

w.kay@independent.co.uk

William Kay is Personal Finance Editor of 'The Independent'