“We are, it is admitted, the financial centre of the world,” the chairman of the Union Bank of London said in 1903. At the time the London exchange was worth as much as the New York and Paris exchanges combined. A Guardian editorial now says the market is shrinking at its fastest rate since 2010.
Glencore’s recent decision to keep its London listing gave a short lift, the paper noted, but it does not stop the drift. Companies are moving to Europe and the US.
Where the money went
The Guardian pointed first to pension funds. In 1997, UK pension schemes put 53 percent of their assets into UK equities. Today the figure is 6 percent. Many shifted into gilts or chased the US tech boom.
Shareholders, meanwhile, pushed hard for payouts. The editorial said dividends grew nearly six times faster than real wages between 2000 and 2019, and that British companies spend less on research and development than European rivals. UK shares yield about twice what US stocks do. In the paper’s words, the British economy “excels at rentierism” and does less well at the investment that would lift productivity.
The result, as the editorial describes it, is that listed firms are easy targets for foreign and private equity buyers, and successful ones raise money elsewhere. Arm was worth £24bn when Japan’s Softbank bought it in 2016. Politicians lobbied it to list in London when it went public. It chose the US Nasdaq instead and has since gained about £85bn in value, most of it going to investors overseas.
The government’s answer
Chancellor Rachel Reeves hopes to revive the exchange by encouraging people to own shares and manage their own portfolios. The Confederation of British Industry wants tax breaks, looser bonus rules, and for Reeves to coax pension funds into British businesses. The Guardian called both plans deregulation that leaves the real problem alone: weak business investment.
It proposed other steps. Government-backed regional banks could lend to start-ups outside London. Taxes on share buybacks could push existing firms toward productive spending, and so could employee directors on company boards. Such ideas, it said, need a political imagination the current government does not seem to have.
