The chancellor and the CBI have plans for reviving the institution. Neither will tackle Britain’s pitifully low levels of business investment
“W
e are, it is admitted, the financial centre of the world,” said the chairman of the Union Bank of London in 1903. Back then, the City of London was the world’s banker, and its stock exchange was worth as much as the New York and Paris exchanges combined. Today, the stock market is shrinking at its fastest rate since 2010. While the mining company Glencore’s recent decision to retain its London listing provided a temporary boost, it won’t stem the tide. Companies are increasingly ditching London and moving to Europe and the US.
Rachel Reeves hopes to revive the exchange by pushing stock ownership, encouraging people to become their own portfolio managers. The Confederation of British Industry (CBI) has its own proposals, including tax breaks and looser bonus rules. Both of these plans are based on deregulation, and neither addresses the underlying problem: Britain’s ailing stock market is both a cause and consequence of stubbornly low business investment and a broken growth model.
In theory, the stock exchange gives companies access to capital, which they invest in their businesses, making those more productive and causing the economy to grow. Pension funds and savers who buy their shares gain from this growth (as do workers, whose wages are supposed to go up as productivity rises). But the stock exchange isn’t providing enough access to capital, and listed companies aren’t investing to boost growth. British pension funds, once major buyers of UK equities, have retreated. Many have shifted to gilts, or headed to the US to take advantage of the tech boom. In 1997, UK pension schemes allocated 53% of their assets to UK equities; today, that figure just is 6%.
