A marketing campaign to promote the joys of investing in the London stock market? The idea may sound slightly desperate, and will fall flat if proponents think they are rehashing the one-off “Tell Sid” privatisation campaign for British Gas from 40 years ago. But, actually, yes, give it a go.
As the CBI puts it in a report out on Wednesday, a “new narrative” is needed to stop the London Stock Exchange drifting into irrelevance. Since 2016, 143 UK-listed companies have exited to private equity takeovers. That tally is depressing if one agrees that corporate transparency and accountability are better in the public arena and that a healthy economy needs a buzzy exchange.
Julia Hoggett, the boss of the exchange, was correct recently when she said “a lot of investors are more fearful of investing in the real economy than investing in cryptocurrency”, which is a perverse state of affairs. There is an educational job to be done. At the other end of the risk spectrum, a now-famous £300bn sits in cash Isas. A chunk may indeed represent prudent rainy-day money, but all of it?
Yet there ought to be another target for a campaign that preaches the long-term economic benefits to the UK of a thriving stock market: HM Treasury. It remains baffling that the chancellor, Rachel Reeves, via her Mansion House compacts and accords, has cajoled UK pension funds to pour money into private markets and privately held infrastructure projects while the greater crisis surely lies in the public arena.
The problems are well known by now and are identified by the CBI: capital flight to the dominant US markets; the decline in the proportion of UK equities held by UK insurance and pension funds from 45.7% in 1997 to just 4.2% in 2022; the lack of new listings to compensate for the take-private deals; and too many UK tech startups heading to the US.
Some of the CBI’s mix of recommendations, including a marketing campaign, are self-help remedies for the finance world itself, such as chasing Asian companies to get a secondary listing in London. A couple ought to be dropped: there really is no need to keep banging on about executive pay when, after a bit of hissing, FTSE 100 companies that insist on paying their executives like Americans tend to be able to persuade shareholders to give a thumbs up.
But the bigger proposals tend to involve the Treasury. If the chancellor can apply pressure on UK pension funds to head towards UK infrastructure, why not give them a gentle prod towards UK equities? The New Financial thinktank shared polling recently that showed UK savers estimated that 41% of their pension pots are invested in UK companies or the UK stock market. When told the true figure was 10% or lower, 51% thought it should be higher. That suggests a certain level of enthusiasm for home bias among savers themselves.
Meanwhile, Reeves is probably sick of hearing that she should cut the 0.5% stamp duty on share purchases that makes London an uncompetitive international outlier. Given the £4bn annual revenues for the Treasury, she’s not going to make the leap in one bound. The CBI’s twist on the theme is that she could start by abolishing the duty for trades within Isas. Good idea. And it probably stands a better chance of being adopted than the hopeful thought that companies’ flotation expenses could be made tax-deductible. (Tax breaks for hiring overpaid investment bankers and lawyers? Not a chance.)
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The big picture is that something needs to happen. The City has been awash for years with taskforces and consultations that have produced some useful reforms, such as changes to listing rules. But, as Hoggett conceded a fortnight ago: “We have still not seen the real turning point in terms of flows of risk capital within and into the UK.” The Treasury needs to take more interest. A hollowing out of the stock market spells long-term trouble.