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The UK needs to overhaul its capital markets in order to attract £1tn of investment in the next decade to fund housebuilding, infrastructure and start-ups, according to a long-awaited report by City grandee Sir Nigel Wilson.
The “UK economy and its capital markets have fallen behind the US since the global financial crisis”, said his report, published on Friday.
The report by Wilson, chair of Canary Wharf Group, will be launched at a high-profile gathering of executives, investors and government ministers at the London Stock Exchange’s headquarters, where senior financial industry figures will issue a rallying cry to continue efforts to overhaul the UK’s ailing capital markets.
The UK has suffered anaemic economic growth, uncharacteristic political instability and investor outflows from publicly listed companies — yet Wilson rejected any suggestion the country is stuck in a “doom loop”.
However, the former chief executive of Legal & General said significant action was required, including in areas such as tax and regulation, as he urged ministers to press ahead with moves to encourage UK investors and pension funds to buy into domestic assets.
“Some of the changes will require a home bias and we’re unashamedly, unapologetic about that,” Wilson told the Financial Times, arguing that other countries such as France, Sweden, Australia and the US use their tax and pension systems to promote domestic investment.
The government this week launched a call for evidence as part of a review of the pensions sector.
Options identified by Wilson include using pension tax breaks to incentivise investment in UK companies and reducing stamp duty on share trading, which generated £3.8bn in tax revenue last year.
“The UK currently taxes its retail investors with [stamp duty reserve tax] when buying a UK-listed Aston Martin share, but not when buying a German-listed Porsche share or US-listed Tesla share,” the report noted.
Another option identified by Wilson — a “UK Isa” to channel savers’ cash into London-listed stocks — is being scrapped by the new Labour government, the FT reported this week.
Wilson also argued that UK markets need to embrace a more “risk-on” mindset after going down the path of “ultra-risk aversion” since the 2008 financial crisis.
He said £100bn of new capital was needed annually for the next decade to fund a “period of regeneration” that can support annual economic growth of 3 per cent.
The figure includes annual investments of £20-30bn to build 300,000 homes per year, £20bn for offshore wind and solar power, £8bn for water infrastructure, £15bn for growing tech and life sciences businesses, and up to £8bn for the rollout of electric vehicles.
Under-investment in the UK relative to other G7 economies has had a negative “cumulative effect over a long period of time”, said Wilson.
“We’re trying to be like Manchester City,” he added, citing the football club’s rise from mediocrity to success on the back of years of heavy investment in improving its roster of players.
The “Capital Markets of Tomorrow” report was commissioned by the Capital Markets Industry Taskforce, a group of grandees chaired by stock exchange boss Dame Julia Hoggett that has pushed for an overhaul of City rules to boost UK markets.
Much of the group’s work has focused on reviving the UK’s public markets, but Wilson emphasised the importance of venture capital, private equity and debt markets. Some City executives believe the reform agenda has focused too heavily on public markets.
Wilson said that he hoped the majority of the UK’s top 20 financial services start-ups — such as Revolut and Monzo — would float in the UK within five years. Part of the task was to narrow the gap in governance and disclosure requirements imposed on public and private companies to make listing more appealing.
“They’re all still private because we’ve not made it sufficiently attractive for them yet to move into the public sphere,” said Wilson.