Some of Britain’s top finance executives, fearful London is losing out to New York and rival European cities, are pressing the government to broaden an array of reforms aimed at attracting big-ticket corporate listings.
London has seen a 40 per cent decline in publicly-listed companies since 2008 and has struggled to match growth in rival markets in Amsterdam, Paris and Frankfurt, while Amsterdam overtook London as a share trading venue soon after Brexit in 2021.
To revive its fortunes, the government late last year published its Edinburgh Reforms agenda comprising over 30 proposed changes to existing rules.
But industry groups and finance executives are lobbying for more, especially as the European Union and United States are revamping their own capital markets to stay competitive.
In a series of meetings with finance ministry officials, business leaders have sought further policy changes to complement a simplified rulebook to persuade more multinationals to list in Britain.
These requests include financial sweeteners for firms to incorporate, list and base headquarters in Britain, as well as tax breaks on investment returns and dividend income to tempt more investors to back UK-listed companies.
“There’s no magic bullet here,” Miles Celic, CEO of lobby group TheCityUK told Reuters. “There are a variety of factors that keep somewhere attractive in terms of investment, listing and being an international finance centre.”
Besides making a case for financial incentives once Britain’s fiscal position recovers from the impact of the pandemic, industry sources also want investors to have wider, more affordable access to investment research.
This sector – which is also undergoing a review – has been in decline since restrictions on the distribution of trading ideas came into force in 2018 as part of governments’ response to the global financial crisis.
The Financial Conduct Authority began a second phase of consultation on listing rules reforms last week, while the government on Tuesday called for feedback on ways to measure the performance of regulators against their new objective of keeping London a globally competitive financial centre.
Britain has already consulted on dozens of reform proposals, many of which are part of the financial services bill being finalised in parliament.
A spokesperson for Britain’s Treasury said the government was delivering a range of changes, including through its Edinburgh Reforms and the financial services bill.
“We want the UK to be the world’s most innovative and competitive global financial centre,” the spokesperson added.
LACK OF ‘MOM AND POP’ INVESTMENT
The UK Treasury and financial sector are also working to tackle under-allocation towards equities among retail and institutional investors, with London’s stock market commanding a small fraction of the level of ‘mom and pop’ investment seen in the United States or Hong Kong.
Finance bosses expect the government to propose reforms for unlocking pensions investment in the coming months, although some pension fund bosses have expressed concerns about any attempt to compel them to invest in riskier fledgling British businesses.
Top financial officials will also publish an “overarching vision” for the City in September, timed for the annual political party conferences.
Further major regulatory changes that require legislation could be hard to implement quickly given Britain is likely to hold a general election next year, with the opposition Labour party favoured by opinion polls to win.
But industry officials say a fundamental change in risk appetite, as well as tweaks to tax law, executive compensation and post-Brexit immigration rules to retain top talent in Britain may also be needed.
In the finance sector alone, more than 7,000 jobs have moved from London to the European Union as a result of Brexit, consultancy EY said last year, although the figures is lower than initially estimated.
“A comprehensive package of measures across listings and other areas … is needed, rather than a siloed approach,” said Scott McCubbin, UK and Ireland IPO leader for consultancy EY.
CHALLENGING ASSUMPTIONS
Supporters of a more vibrant UK stock market are also increasing pressure on bankers managing IPO processes to challenge assumptions about London’s poorer liquidity or post-IPO performance, relative to rival venues.
London lost out to New York on the proposed listing of British chip designer ARM Holdings, a company to which Number 10 has assigned national strategic importance.
But some data supports those who say London is still a relatively safe bet.
In a torrid year for global equities, companies that floated on London’s main market in 2022 declined on average by just 1.6 per cent as of end-December, London Stock Exchange Group (LSEG.L) data shows.
That compares with a 23.5 per cent average fall for newly-listed companies on the New York Stock Exchange, a 24.2 per cent fall in Frankfurt, and a 43 per cent drop for those that joined the Nasdaq.
Industries seen as part of Britain’s core strengths, such as biotechnology, however, say the government has a huge task ahead.
Only 28 million pounds ($35.34 million) was raised in IPOs by British biotech companies in 2022, a report from the BioIndustry Association (BIA) and research company Clarivate showed.
In the United States, the figure was 1.4 billion pounds.
Proposed changes to UK listings are encouraging, but may not be enough, said Steve Bates, BIA CEO.
“It’s an important flower in the bouquet…but I think we need more than one rose to make this an attractive proposition.”
($1 = 0.7923 pounds)