A Priority for the Next Chancellor: Boost the London Stock Market

The recent surge in takeover bids has brought short-term gains, but it also highlights the decline of the London stock market. Since 2023, there have been 154 bid deals worth £165 billion, while only 11 new listings with a value over £100 million have emerged. This trend is alarming and requires attention from the next chancellor.

A report by Peel Hunt reveals that capital flows in and out of London are lopsided. While bids continue to flow in, new listings have dwindled significantly. This has severe implications for the UK economy, as a thriving stock market is essential for channeling capital into wealth-creating assets.

The decline of the London market can be attributed to its relative underpricing compared to other global markets. The US accounts for over 70% of the world’s stock market value, drawing liquidity away from London. As a result, UK boards are increasingly pressured to sell, creating a buyer’s market.

In recent years, many large companies have left the London exchange for other markets, particularly in the US. Although the Treasury has acknowledged this issue, its response has been inadequate. Minor adjustments to listing rules and tax incentives will not suffice; a fundamental overhaul of the system is needed.

The UK’s pension system plays a significant role in this problem. As economist Charles Hall points out, prior to 1997, the dividend tax credit regime favored pension fund investment in UK companies. This approach helped channel capital into local businesses, fostering growth and development. Policymakers should revisit this strategy and create incentives that encourage pension funds to invest in UK-listed companies.

Andy Haldane, president of the British Chambers of Commerce, has proposed shifting incentives and tax reliefs to channel more capital into UK firms. His proposals are a step forward, but they require political will to implement. The next chancellor must decide whether to continue with incremental adjustments or take a more comprehensive approach to reviving the London market.

The stakes are high: a shrinking stock market means vital capital is not reaching small businesses, entrepreneurs, and innovators who need it most. The UK’s economic growth prospects depend on reversing this trend. Policymakers should stop tinkering with minor reforms and take a radical approach to revive the London market. As the next chancellor takes office, they have a clear choice: choose wisely for the UK’s economic future.