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Editor’s corner – The trickle down conundrum

Katie Royals, 23/09/2022

Ahead of today’s mini budget, the concept of trickle down economics has been making headlines. Prime Minister Liz Truss appears to be a great supporter of the concept, while US President Joe Biden has openly critiqued it. “I’m sick of trickle down economics,” he said.

As a raft of measures are expected to be announced that will lower regulation in certain areas, end caps on bankers' bonuses, reverse a planned increase to Corporation Tax, and potentailly cut Stamp Duty, many have highlighted these measures will help the wealthy far more than the poor.

Ms Truss has argued this will boost economic growth, which in turn will help those who are less wealthy.

But does trickle down economics work?

In a passive form, I – along with certain economists – argue it does not.

The idea that a strong economy with thriving businesses and plenty of wealth creation will support those at the lower end of the wealth scale does make sense.

However, it is often presented as a straight forward slide, where the money flows down with no intervention simply does not work. When a passive approach is taken, trickle down economics will not work.

Instead, the slide has numerous kinks in it and needs a helping hand making its way down. If purposefully directed, it can reach those who need it most.

In lieu of the government providing this helping hand, the private wealth sector has the opportunity to step up.

Corporate social responsibility (CSR) is a topic of ever-increasing importance.

It is hard to escape the challenges the country – and indeed the world – is facing and employees are likely going to want to do something about it.

From volunteering days, to charity projects and fundraising initiatives, there are plenty of relatively small steps firms can take to help their employees make a difference.

However, the biggest impact the sector can have is through the deployment of capital.

Impact investing is growing in popularity among wealth managers and clients alike. Impact investing is often reserved for the environment, but it can be used for far more than that, not least supporting social projects.

Clients do not live in bubbles. Many run businesses of their own so are acutely aware of the mounting cost of living pressures, others will be aware from social media and the news.

Understanding these pressures and their own privileged situations, many clients will want to do something to support those less fortunate.

Wealth managers have the ability to facilitate this. Not only can they offer social impact investing solutions, but they can also start the conversation with clients and help them work through their options.

The level of capital managed by the private wealth sector can make a real difference to a range of issues if deployed appropriately. In many ways, the sector is in a privileged and exciting position because it can influence real change.

Over the next few months, it will become clear whether the sector will choose to make the most of this opportunity or not.

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