The London stock market risks “drifting into irrelevance” without government and regulatory reforms, ranging from tax breaks for stock market listings to looser bonus rules for directors, a lobbying group has said.
The 20 recommendation put forward by the Confederation of British Industry (CBI), which lobbies on behalf of UK businesses, suggest financial incentives, marketing campaigns and boardroom pay are central to guaranteeing the future success of the London Stock Exchange, which has been losing stock market listings and floats to foreign rivals.
“With domestic capital shifting away from UK equities, new listings having slowed … and high-growth firms often looking overseas to raise capital, the UK stands at a pivotal moment for the future of its public equity markets,” the CBI said.
The lobbying group claims that tax breaks could persuade more companies to list their shares. By making the costs of a flotation or initial public offering (IPO) tax deductible, the government would be ensuring more cash is available for reinvestment and growth, the CBI’s Revitalising UK Public Markets report said.
“IPOs are time-consuming, costly, and uncertain. The lack of tax deductibility for IPO expenses reduces the net proceeds retained by companies and may deter listings,” it said.
The London Stock Exchange was dealt another potential blow last week when it was reported that Pascal Soriot, the chief executive of AstraZeneca, had discussed shifting the stock market listing of the UK’s most valuable listed company to the US.
The report also said the UK should take advantage of uncertainty in the US, where a lack of predictable policy announcements from Donald Trump has made London a more attractive home for foreign companies’ secondary listings.
“Many Asian markets are growing faster than the UK but this presents an opportunity. London can offer companies in these regions a complementary venue for additional listings, particularly at a time when any Asian companies are becoming more cautious about extra-territorial US capital markets regulation,” the report said.
It comes days before the chancellor, Rachel Reeves, is to make her Mansion House speech and release the government’s financial services strategy, which is widely expected to suggest reforms to Isa savings rules, pension investments, and further City deregulation to increase growth and competition.
However, company rules should also be reviewed if government and regulators hope to revive the London market, the CBI report recommended. That included overhauling bonus rules for nonexecutive board members, which could encourage bosses to take more risks, it said.
Nonexecutive directors are barred from receiving share options or other types performance-related pay, under the UK corporate governance code. This is to “preserve independence and objectivity”, the CBI said. However, the lobby group said restrictions around share-based bonuses “may inadvertently encourage risk-averse board cultures”. .
The CBI said that the report was based on feedback from chairs and leaders of more than 30 listed companies, including FTSE 100 firms, as well as big investment houses and advisers.
Rupert Soames, chair of the CBI, said: “Most of the challenges facing the UK equity markets are common to other markets, including the growth of private capital, the increase in passive investment funds, and investors shifting assets to US markets.
“The opportunity now is for the UK to build on the work already done to lead the world in finding innovative solutions which will once again make London attractive to companies wishing to raise capital and list their stock, and to retail and institutional investors who wish to participate in the wealth creation owning stocks and shares provide.”