The narrative that UK investors are risk averse, unprepared to support tech companies and that the London Stock Exchange is therefore doomed by being unable to attract IPOs like Arm Holdings is wrong. The problem is a lack of long-term capital directed towards UK companies of all sizes. Thanks to the actions of governments and regulators, the UK is unique as the only country with a major stock exchange without significant financial support from domestic insurance and pension funds. Chancellor Jeremy Hunt’s British Isa initiative is welcome but with estimated annual cash inflows into UK equities of at most a few billion pounds, it does not go far enough (“Chancellor’s extra Isa allowance simply adds to complexity facing savers”, Opinion, March 7).
A healthy stock market is analogous to a healthy housing market — it needs to function well at every level, not just at the top end. The activity of first-time buyers ultimately ripples all the way up to houses worth many millions. In the UK, the lower end of the stock market has been hollowed out. There are 25 companies (non-investment) in the Fledgling index compared with 98 five years ago. The Small Cap index lost half its market capitalisation in the past five years to takeover bids. If one extrapolates, it will not exist in 2028. Urgent action is needed. Repairing the stock market is easier than rebuilding it from scratch.
The UK government is short of funds but there is a simple solution — when offering tax relief, attach the condition that most of the money should be invested in UK assets. With Isas this should not be a stretch as the original concept was for 100 per cent investment in the UK. Similarly with pensions, a cap on non-domestic exposure could be introduced. Pension funds in South Korea, Australia, Italy and Japan have between 37 per cent and 49 per cent allocated to domestic equities versus the UK’s paltry 2.7 per cent while having similar or smaller global equity index weightings. This would create a pool of many hundreds of billions and the bees would quickly swarm to the proverbial honeypot.
This is not about the government picking winners or interfering in markets. The market has been wrecked by interference already. If our government hopes to see high growth stemming from increased business investment, the solution — the capital — is right under its nose.
Mark Slater
Chairman, Slater Investments
London EC4, UK
