The government’s “obsession with private capital” meant it failed to understand or tackle the systemic challenges the UK equity market is facing, Charles Hall, head of research at Peel Hunt, has said.
Speaking at the Association of Investment Companies conference today, Hall highlighted “the need to have UK investment in UK assets”, describing it as “central to having a healthy economy”.
“Overseas investors now own close to 60 per cent of the UK equity market,” said Hall, and noted that since overseas investors are more reluctant to invest in smaller companies, it has cut off a key source of funding for the UK’s growing firms.
However, the government has failed to understand the root of the problem, instead being distracted by the encouraging the growing market of private equity over the last few years, he argued.
This has left the UK equity market incredibly weakened, to the point where the entire FTSE Allshare is now smaller than Microsoft’s market capitalisation, the Peel Hunt head noted.
It’s become abundantly clear with my interactions with Treasury that they didn’t really understand the central role that the equity market plays in terms of economic growth, in terms of tax revenue, in terms of wealth creation
Charles Hall
“They also didn’t really understand that there was an issue, and after all, there are still 350 companies in the FTSE 350. So why is there an issue?”
Instead, the government developed an “obsession with private capital”, Hall said, pointing to the government’s Mansion House compact that pushed pension money towards private capital.
However, Hall was eager to make a “passionate argument for public markets” and the role that they play in the UK.
“Would the issues of Thames Water have occurred if it had been a quoted company? I don’t think they would,” argued Hall, adding the same would have been the case at the Post Office due to the greater level of scrutiny listed companies receive.
This was also the case for taxation, he added, pointing to the drop in tax bill from Morrison’s after it became a private company.
In addition, the “steady flow of UK companies deciding to list in the States” has left the UK public market increasingly in decline.
The Peel Hunt head noted that at the rate that firms are leaving the FTSE Smallcap market, there will be none left by 2028.
“The good news is that the government is listening,” said Hall. “There has been a real change in tone as opposed to last year, from really not seeing that there was an issue to now recognising that the equity market has to be addressed and it is not just about private capital.”
Pointing to the recent Budget, he said the newly revealed British ISA was “not going to be a silver bullet,” he said it “was a start”.
Hall also described the current imposition of stamp duty on buying shares as “utterly crazy” for a country looking to grow its public markets.
While he acknowledged the money that stamp duty brings in, he said the government should look at least at removing it from small and mid cap investment.
“Even France has done that, and we’re not competitive with France,” Hall said.