The current tax regime is making UK markets “just about tradable” and are leading to their “gradual undermining”, according to the chief executive of Interactive Investor.
Speaking in the latest episode of City AM‘s Boardroom Uncovered podcast, Richard Wilson said his company has seen an increase in more investors trading in foreign markets instead of the UK which he said “is not very good for the long term health of the country”.
The CEO added that he doesn’t blame the current Labour government for the situation he sees as “previous government didn’t solve it either” but traces the issue back to the introduction of transaction tax in the late 1980s and early ’90s.
The chief executive, who also holds the position of chief operating officer at parent company Aberdeen, said the move has “gradually eroded the UK market” as well as undermining it.
‘It’s not by magic that you’ve got higher valuations elsewhere’
The boss of Interactive Investor said: “We’ve seen an enormous growth in index funds and ETFs and people trading in more foreign markets than the UK markets because the UK markets, unfortunately, with the current tax regime, are just about tradable, which is not very good for the long term health of the country.
“I don’t blame the current government. The previous government didn’t solve it either.
“We imposed that transaction tax in the late 1980s and early ’90s. The effect of that is to gradually erode the UK market and everyone cries about IPOs going to the US or a lack of growth in the UK.
“If you tax your market out of existence, you get less tax because it doesn’t actually work.
Secondly, it’s not by magic that you’ve got higher valuations elsewhere – I would do the same – you would list elsewhere. So what you’re seeing is a gradual undermining of the UK market.
If you ask any algorithm or any fund to increase its allocation to the UK market on trading basis, they won’t actually buy the shares or buy derivatives because the transaction cost makes every decision irrational.
Don’t ‘allow ideology to get in the way of economics’ – Interactive Investor boss
Also as part of the Boardroom Uncovered episode, the boss of Interactive Investor said Chancellor Rachel Reeves needs to be “quite courageous” and not “allow ideology to get in the way of economics” when she delivers her Spring Statement on 26 March.
Wilson added that the government’s growth agenda “isn’t matched with growth policies”.
The chief executive also said the UK doesn’t “appear to have a very strong political class” and called for changes to how the country values and rewards politicians.
The Spring Statement will be the Chancellor’s second major fiscal event after she delivered her first Budget in October 2024.
Interactive Investor is the third investment platform to be featured on Boardroom Uncovered after Robinhood and eToro. Watch those episodes here.
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