"Treasury must revive London's struggling stock exchange – Nils Pratley"

A push to highlight the benefits of investing in the London stock market might seem like an uphill battle, especially if it simply echoes past efforts such as the British Gas privatization campaign decades ago. However, the effort is worth making.

As noted in a recent report by the CBI, a fresh approach is needed to prevent the London Stock Exchange from losing its significance. Since 2016, 143 companies listed in the UK have been acquired by private equity firms. This trend is concerning for those who believe public markets foster greater corporate transparency and that a strong economy depends on a dynamic exchange.

Julia Hoggett, head of the exchange, recently pointed out that many investors are more hesitant to put money into the real economy than into cryptocurrencies—a troubling imbalance that underscores the need for better awareness. On the opposite end, an estimated £300 billion sits in cash ISAs. While some of this may be reserved for emergencies, surely not all of it?

A campaign promoting the long-term advantages of a healthy stock market should also target the Treasury. It is puzzling that the chancellor, Rachel Reeves, through recent agreements, has encouraged UK pension funds to invest in private markets and infrastructure while the public markets face greater challenges.

The issues are well documented in the CBI report: capital flowing to the dominant US markets; UK insurance and pension funds reducing their holdings in UK equities from 45.7% in 1997 to just 4.2% in 2022; a lack of new listings to offset take-private deals; and too many UK tech startups choosing to list abroad.

Some of the CBI's suggestions, including the promotion campaign, involve steps the financial sector can take on its own, such as encouraging Asian firms to seek secondary listings in London. A few ideas, however, could be set aside—there is little need to keep debating executive pay, as FTSE 100 firms that align with US-style compensation often secure shareholder approval despite initial resistance.

The more significant proposals, though, require Treasury involvement. If the chancellor can steer pension funds toward UK infrastructure, why not nudge them toward domestic equities? Recent polling by New Financial found that UK savers believe 41% of their pension funds are invested in UK companies or the stock market. When informed that the actual figure is 10% or lower, 51% said it should be higher—indicating some willingness for domestic investment.

Meanwhile, Reeves may have heard enough calls to reduce the 0.5% stamp duty on share purchases, a charge that puts London at a disadvantage globally.