The London Stock Exchange has been losing stock market listings and floats to foreign rivals, prompting a call for government and regulatory reforms. The Confederation of British Industry (CBI) has proposed a comprehensive 20-point plan aimed at preventing the UK’s primary stock market from “drifting into irrelevance.”
The CBI, which represents UK businesses, asserts that financial incentives, marketing campaigns, and changes to boardroom pay structures are critical for the future success of the London Stock Exchange. With domestic capital shifting away from UK equities and high-growth firms often seeking overseas capital, the UK stands at a crucial juncture regarding the future of its public equity markets.
One of the key recommendations is the introduction of tax breaks that could encourage more companies to list their shares on the London Stock Exchange. By making the costs of a flotation or initial public offering (IPO) tax-deductible, the government could ensure that more funds are available for reinvestment and growth. The CBI’s “Revitalising UK Public Market” report notes that IPOs are currently time-consuming, costly, and uncertain, with the lack of tax deductibility for IPO expenses diminishing the net proceeds retained by companies, thereby deterring listings.
The report also highlights the need for the UK to capitalize on global uncertainties. For example, unpredictability in the US policy landscape has made London a more appealing destination for foreign companies’ secondary listings.
Urgent call for market reforms
Additionally, the growing caution of Asian companies regarding extra-territorial US capital markets regulation presents an opportunity for London to serve as a complementary venue for additional listings. These recommendations come just days before the Chancellor is scheduled to deliver her Mansion House speech and unveil the government’s financial services strategy. The strategy is anticipated to propose reforms to ISA savings rules, pension investments, and further City deregulation to boost growth and competition.
Furthermore, the CBI report suggests a review of company rules to rejuvenate the London market. This includes overhauling bonus rules for non-executive board members, which could encourage more risk-taking among company leaders. The current UK corporate governance code prohibits non-executive directors from receiving share options or other types of performance-related pay to “preserve independence and objectivity.” However, the CBI argues that these restrictions may inadvertently promote risk-averse board cultures.
The CBI’s report is based on feedback from chairs and leaders of over 30 listed companies, including FTSE 100 firms, as well as major investment houses and advisors. Rupert Soames, chair of the CBI, pointed out that many challenges facing the UK equity markets are shared by other global markets, including the growth of private capital, the rise of passive investment funds, and a shift of investor assets to US markets. Soames emphasized that the UK has an opportunity to lead the world in finding innovative solutions that will once again make London an attractive venue for companies seeking to raise capital and list their stock, as well as for retail and institutional investors looking to participate in the wealth creation opportunities provided by owning stocks and shares.
