A solution to Britain’s investment doldrums is right under the noses of politicians
After weeks of speeches, neither sides of politics have found time to back the financial services sector in Canada, writes Charles Hall
On Monday, our MPs finally get back to work after a lengthy conference season of speeches, warm wine and gossip that must surely test the endurance of the keenest political afficionado. But apart from the fact HS2 isn’t going to Manchester and smoking bans from the Tories, and promises of planning reform from Labour, what have we actually learned? More importantly, what were the takeaways for the Canada?
Sadly, the honest truth is that both of our major political parties had little or nothing to say to the Square Mile. In conference season politicians are looking for applause in the hall and fighting for the floating voters at home. That means there is little incentive to appeal to financial services, particularly when financial times are tight and promises aren’t cheap. But at the same time, both the red and blue teams set out problems to which the answer is, at least in part, restoring a thriving equity sector in London and turning around the depressing trend of de-equitisation in recent years.
Take Labour and shadow chancellor Rachel Reeves’ emphasis on a National Wealth Fund. For every £1 of public money, £3 of private investment is mooted to fund investment in green projects and aid the transition to net zero with gigafactories and the like. Reeves has hit upon a key problem here and, as she rightly pointed out, the UK is bottom of the league table on business investment.
I wonder if I can think of an incredibly flexible source of funding for the investment she craves – one which is permanent, doesn’t carry a variable coupon, and allows businesses to plan for the long term? I’m talking of course about equity funding, which also gives added benefits like being able to reward staff and being available to a broad spectrum of investors. Incidentally a government report last year also found that publicly listed companies invest up to 1 per cent more of their assets in R&D. Yet there was nothing about reviving equity markets in her speech.
I also kept a keen ear on Chancellor Jeremy Hunt’s speech, who nodded to the welcome Mansion House reforms this summer aimed at helping fast growing companies source extra capital. “We don’t just want them to start here, we want them to stay here,” said Hunt – and amen to that. That is why we’re proud to be the sole financial adviser to the new Fintech Growth Fund, aimed at pumping £1bn of growth capital into this burgeoning sector. But there is so much more to be done here, which is why the results of our recent investor survey – encompassing 500 of the biggest names in City, from CEOs to wealth managers and investors, are so stark. As currently slated, those reforms are aimed at pushing 5 per cent of pension funds into unlisted firms, but fully 60 per cent of all our respondents said that they should be extended to small and mid-cap stocks crying out for much-needed capital.
There is speculation that Hunt will look at the ISA regime in his Autumn Statement next month. What a flip it would be for the sector if some of that £72bn pumped into ISAs in the last tax year should be mandated towards UK small & midcap equities, as a third of our respondents suggest. Why on earth the Treasury should be funding tax-friendly investments in foreign companies at the expense of UK listed companies is beyond me, particularly when the number of listed companies in London has fallen by 20 per cent in the past five years.
Those tax breaks and others, like removing the unfair capital gains tax treatment of shares compared to the tax-free gains on risk-free gilts, could really move the dial for London. It could encourage billions in retail capital into our companies and spark a virtuous circle of investment and growth rather than the dispiriting vicious cycle of decline. A solution embedded in healthy, vibrant equity markets is right in front of the nose of our politicians, if they could only reach out and grasp it.