The London Stock Exchange has been bruised and battered over the past two years. James Ashton, CEO of the Quoted Companies Alliance, warns the Chancellor the time is now for action
JUST imagine the FTSE 100 stripped of its three largest constituents. What if the drugs giant AstraZeneca, energy major Shell and HSBC, one of the world’s largest lenders, decided to list their shares elsewhere? What if the trio departed the London market in the space of just a year?
Even with the atmosphere febrile as gambling group Flutter Entertainment prepares to move its primary listing to New York, it’s highly unlikely of course. In fact it sounds like more miserabilism that the urgent matter of fixing London’s equity markets just doesn’t need. And yet across the Irish Sea in Dublin, precisely this exodus is taking place.
The building materials firm CRH ceased trading on Euronext Dublin last September, followed last month by the delisting of Flutter, whose brands include Paddy Power. As soon as its merger with US rival WestRock wins clearance, the packaging group Smurfit Kappa is quitting the market too. Together, these three companies represented more than half of all share trading in Dublin.
It would take many more exits from London to replicate the Irish crisis. But Dublin’s equities decline, akin to Ernest Hemingway’s two ways of going bankrupt – gradually, then suddenly – should have UK politicians and financial regulators on high alert.
There is much that divides London and Dublin’s listings venues – their scale and depth of liquidity for starters. However, common threads exist: the lure of New York, erosion of the home bias that saw companies naturally trade their shares close to their headquarters, and the recent dearth of IPOs.
And notably, London has much more to lose than its Irish counterpart. In the last two months alone, it has shed an alarming 35 public companies, more than Dublin counts in its entire ecosystem.
That’s why the Quoted Companies Alliance is asking for a series of fast fixes in the Budget on March 6 designed to bring fresh momentum to the ongoing work of futureproofing London’s stock markets. Crucially, what is often regarded as a top-down problem – how to stop losing flagship UK companies to overseas markets – requires some bottom-up solutions. If we nurture our small and midcaps – which operate in advanced industries including fintech, biotech and digital media and power regional economic growth – they will have the best chance of becoming the blue chips of tomorrow.
We are calling for the scrapping of stamp duty on share trading for companies outside the FTSE 100. Action here is one of the strongest signals the Chancellor can send of the government’s commitment to our public markets that sit at the heart of the City of London. At a cost of no more than £650m a year, the move would stimulate investor interest in hundreds of domestic companies and bolster the UK’s competitiveness versus the US and Germany, where an equivalent transaction tax does not exist.
If we don’t put a chunk of our considerable assets behind the UK’s remarkable, entrepreneurial prospects, why should anyone else?
It is also time to overhaul the ISA regime. Turn ISAs into British ISAs (BRISAs) so that going forward every pound invested in shares in overseas companies is matched by at least one pound invested in UK stocks too. Retail investors could still put Apple or Tesla shares in their BRISA, but a direct link needs to be restored between the generous tax breaks these products offer and backing the British businesses that grow and invest here.
To thrive, the UK must exploit its strengths. And one of those is our vast asset management industry, something which Ireland and almost every other country cannot rival. How can more of that money be put to work productively right on these funds’ doorsteps? UK pension funds that take billions of pounds in taxpayer support should explain why they invest in home equities far less than many other overseas pensions manage to deploy capital in their own market.
London Stock Exchange’s exit door swings
That should start with a simple, clearly displayed figure, the percentage of assets invested in UK equities, so that a fund’s customers, politicians and the media can compare and make informed choices. It would be rather like the single-figure remuneration that companies are asked to disclose to show how much their chief executive takes home.
One institution that can do better is Nest, the UK’s largest defined contribution workplace pension scheme by members. It receives £500m of fresh contributions each month, largely from low to middle income earners, but only a sliver is invested in the UK, into the companies in these workers’ communities that provide goods, services and jobs of the future. There is nothing inherently wrong with backing the US artificial intelligence leader Nvidia for super-sized returns today, but what about the homegrown companies that will underpin the UK economy tomorrow? There should be much better alignment.
Another organisation we want to see step up is the British Business Bank. This week I am writing to the Business Minister Kevin Hollinrake, asking him to revisit its remit. Supporting venture capital-backed companies is laudable, but growth companies are public too and the nation’s business development bank must do a better job of recognising that.
In a similar vein, too little of the putative £50bn pension fund capital raised last year by the Mansion House Compact is reaching the AIM and Aquis Growth Market stocks that were part of the original plan.
If we want our public markets to thrive while others wither, we must commit capital where it is most needed, to stocks eager to grow. Because if we don’t put a chunk of our considerable assets behind the UK’s remarkable, entrepreneurial prospects, why should anyone else?