London’s stock market risks ‘drifting into irrelevance’, according to business leaders.
In a hard-hitting report, lobby group the Confederation of British Industry (CBI), calls for bold reforms to revitalise the exchange.
The proposals include the removal of stamp duty on share purchases – a 0.5 per cent tax that only applies to UK equities.
Critics say this arrangement makes it more attractive to buy overseas stocks such as Amazon instead of investing in British firms like Rolls-Royce.
Ministers are also urged by the CBI to consider encouraging pension funds to invest more in UK shares.
The London market faces a deepening crisis with many of its most prominent companies being snapped up or switching their listings to New York.
Threat: The London Stock Exchange faces a deepening crisis with many of its most prominent companies being snapped up or switching listing to New York
Fintech Wise is the latest to have confirmed such a move while recent reports suggested that even drugs giant AstraZeneca – Britain’s biggest listed firm – may cross the pond.
The CBI’s report said UK investors are ‘shifting away from UK equities’ while listings have slowed, private equity predators are snapping up many businesses and high-growth firms are often looking overseas to raise capital.
City grandees, government officials and regulators have been working to turn the UK’s fortunes around including through changes to the listings regime.
And the report acknowledged that reforms had created ‘positive momentum’.
But it added: ‘If current trends continue unchecked, there is a risk of London’s markets drifting into irrelevance, with fewer domestic champions and lower investor interest, leading to an inability to support home-grown high-growth companies.’
CBI chairman Rupert Soames said that while the problems facing the UK were common to other markets, London had seen a ‘far greater loss of domestic liquidity than other markets as investors have allocated their assets away from UK equities and into other markets and into bonds’.
Proposed reforms include moves to reinvigorate public interest in shares, encouraging companies in Asia to have secondary listings in London, and making the cost of initial public offerings (IPOs) tax deductible.
And the report raises the idea that after the Mansion House accord – under which pension funds have agreed to invest more in private UK assets such as infrastructure – a similar move might be considered to include UK shares.
Another proposal – not put forward by the CBI but expected to be unveiled by Chancellor Rachel Reeves in her Mansion House speech next week – involves reducing the maximum level of cash that can be invested tax-free into Isas every year.
The idea is to encourage savers to plough their money into stocks and shares instead. It is backed by many in the City but opposed by building societies who rely on the cash savings to fund mortgage lending.
Soames would not be drawn on his view given the divided opinion at the CBI but made clear his wider opinion on the merits of investing in cash rather than other assets, saying it had been shown to be ‘the worst possible investment’.
Soames voiced optimism about the push to revive the London market.
He said the London Stock Exchange together with regulators and the Government were ‘getting their act together to try and bring life back into the LSE’.
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