Public backing for ‘defence bonds’ to boost military spending would hang on financial incentives not simply a call to patriotism, new research reveals.
People would be more likely to invest in bonds funding UK national security if they offered tax-free interest, had a competitive rate of return or weren’t liable for inheritance tax according to research by Hargreaves Lansdown.
War or defence bonds are a system where citizens effectively loan money to the government to pay for military spending, in exchange for interest.
The Government has just launched its Defence Investment Plan promising an extra £15billion over four years to deter a Russian attack, but this has provoked controversy over whether it will be enough to protect the country.
One idea that has been floated is for the Government to launch war or defence bonds to boost funding for the armed forces and other security measures. It is unknown whether incoming Prime Minister Andy Burnham supports such a plan.
Just one in 10 members of the public said they would invest in such a bond because they want to support UK national security, although this rises to 15 per cent among people who are already active investors.
Defence bonds: Would you invest for love of country, for the right financial inducement, or only after hearing how your money would be spent?
One in three people overall said they would not trust the Government to spend the money effectively, although 43 per cent said they would want to learn more before deciding whether to invest.
The Hargreaves survey found the general public would be far keener on buying defence bonds if they came with financial perks.
The most popular incentive was tax-free interest income, with 31 per cent saying it would make them more likely to consider investing in a national security or war bond.
Some 29 per cent said a competitive interest rate compared with other savings and bond products would attract them, while 17 per cent said they would want a clear explanation of how the money would be used
An inheritance tax incentive, such as the bond falling outside an estate for inheritance tax purposes, would entice 13 per cent of the public.
But 17 per cent said nothing would make them buy a defence bond and 35 per cent said they didn’t know.
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Hargreaves surveyed 2,000 people who were weighted to be representative of the UK population, plus around 550 active investors.
The latter were more likely to say they would probably invest, but also more likely than the rest of the public to say they needed to know more first.
Among investors, 56 per cent cited tax-free interest as appealing, 53 per cent a competitive interest rate, and 24 per cent inheritance tax benefits.
Hargreaves also found that 65 per cent of the investors who were open to buying defence bonds would fund the purchase from cash rather than reallocating funds from other investments.
Anna Macdonald, investment strategy director at Hargreaves Lansdown, says: ‘Brits are open to buying a bond to fund our national defence, but patriotic rhetoric alone won’t be enough to persuade them to invest.
‘Any government that’s interested in this policy should consider incentives including more favourable tax treatment to encourage investors to commit their money. Inheritance tax could be a powerful lever to pull here.’
Macdonald says the polling found low trust in governments to use money effectively, so clear and strong commitments would be needed about how any money raised from defence bonds would be spent.
‘A sizeable portion said they would use cash savings to fund a purchase, instead of switching from an existing investment,’ she adds.
‘With the government’s ambition to get more Britons investing, a national security bond offering the right incentives could also encourage people to move money out of their cash pot.’
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