Planes and trains are great, but Reeves must fix financial infrastructure too
New rail projects and reservoirs are welcome, but if Rachel Reeves really wants Britain to be a better place to do business, she must modernise the City too, says Chris Elms
In her speech yesterday , the Chancellor Rachel Reeves spoke of her plans to better link the high-productivity areas of Oxford and Cambridge and plans for new rail projects and reservoirs.
Upgrading our built environment and physical infrastructure will be a vital part of supporting UK growth. But it is equally vital that the UK retains a laser focus on modernising our financial services infrastructure to deliver on the government’s industrial strategy.
This work, years in preparation, offers a shovel-ready opportunity for the government to keep the UK ahead as the best place to do business and invest.
Bolstering retail investment
UK retail investors are disengaged from capital markets in comparison to their European counterparts. Only 11 per cent of households own stocks and shares, compared with Sweden’s 22 per cent.
Figures show that the UK could unlock an additional £740bn for the economy if households invested a quarter of their savings in shares and funds.
If we look at the success of the Swedish model, moving to a digital share register, as opposed to the dual paper-digital framework operated today, would make share trading transactions more efficient and transparent, in line with the interim recommendations of the UK’s Digitisation Taskforce.
Similarly, fostering a more investment-oriented culture with a more educated and incentivised retail investor base is essential and would help drive a resurgence of funding for smaller companies, bolstering the UK economy.
Bringing private markets onside
Financial infrastructure for private companies must also be modernised to embed them in the UK during their growth journey.
If successful, the government’s Pisces sandbox project, for example, could support private companies in accessing liquidity and tapping into UK capital markets as they ascend the funding escalator.
Bringing private capital markets into the mainstream infrastructure, including post-trade processing, in this way will support a wider array of investors with access to new asset classes.
Sweden’s highly engaged retail and institutional investor base acts as a strong funding escalator, accelerating smaller companies’ journey towards IPO. This is the type of funding support we must strive to create for UK companies. While the Swedish economy is just one-sixth of the size of the UK it has produced over 460 smaller company IPOs in the past decade – not far behind 595 in the UK.
The Central Securities Depository for the UK is positioned perfectly to help build out this funding escalator with a modernised securities market underpinned by the transformation of our Crest settlement system.
The road ahead
The modernisation programme for the UK’s financial services has seen progress with the accelerated settlement taskforce announcing the recommended date for shifting to T+1 settlement by October 2027.
This will be crucial in reducing counterparty and market risk and increasing the efficiency of securities settlement.
However, we must also see progress from the digitisation taskforce and the release of their much-anticipated final report.
In July 2023, the taskforce published its interim recommendations, including the progressive vision of a single digital register, with final recommendations due later in 2024. Today, on average 99 per cent of the share capital of FTSE350 shares reside in the Central Securities Depository. Consolidating all shareholdings into a unitary register offers the possibility for new data-enabled means for companies to communicate with all their investors, and vice versa.
Moving ahead with these recommendations will make the whole process of owning and managing shares much more transparent and efficient — eradicating unnecessary paperwork and redundant processes. Adopting this progressive approach will also lay the groundwork for new open finance applications, empowering citizens to control their financial futures in new ways.
The groundwork has been done. Now it is time to deliver. We look forward to the final report and delivering what the City needs.
Taken together, these measures are essential to the future of the UK’s financial services and must be included in the government’s anticipated industrial strategy to ensure our capital markets remain attractive to domestic and international business and competitive on the global stage.
Chris Elms is CEO of Euroclear & UK International