Investors need confidence to invest to turn London’s fortunes around
Susannah Streeter, head of money and markets, Hargreaves Lansdown: “The lower liquidity of the London Stock Exchange is increasingly hampering its ability to hang onto listings. The bright lights of New York, with its hefty valuations and super-star tech giants are a big draw. But for a US listing to make sense, the underlying business needs a strong US presence, so success won’t solely be down to a switch of home market.
Cutting stamp duty on shares could play a part in helping boost liquidity on the London markets and make the City more attractive. It is unreasonable that investors buying UK shares have to pay stamp duty when most overseas share trades are stamp duty free. We should be brought more in line with most other G7 countries and see the playing field levelled for the UK. The Office for Budget Responsibility is forecasting that the tax take from stamp duty on shares will rise by 2030 to hit £5.1 billion annually, from £4.2 billion currently. However, this is still a tiny proportion of the pie compared to income taxes which account for £310 billion of the Treasuries revenues. If stamp duty on shares is cut, there may be an initial hit to the coffers, but if it encourages more people to dip their toe into the London market, it could help revitalise the UK economy and create an investment culture in the UK and help the economy grow. A cut in UK stamp duty to bring it into line with other jurisdictions and would remove a barrier to UK trades which will help boost ownership of UK-listed companies, help increase liquidity in the market and in turn potentially persuade more companies to stay listed in London.
6.4 million households have no arrears and more than enough savings to cover emergency needs, but no investments, according to data in the HL Savings and Resilience Barometer. Many are missing out on a big opportunity to boost their resilience in later life. The tricky part is getting people to take a first step on their investing journey.
The barriers to start investing are behavioural, people don’t have the confidence as they don’t get the help they need to start investing. But there’s a review underway into how better to guide people to good financial decisions and outcomes without having to pay for advice. This will mean businesses can offer more targeted support and guide people to move long term savings into investment. This will be a gamechanger, offering the potential to transform how we communicate with consumers and how they, in turn, manage their money.
Building an understanding of how investment plays a part in long-term financial resilience is the key. Everyone should hold some cash, but not too much, and getting the balance right is always tricky. Better guidance could prompt even more stock market participation from those holding excess cash savings. However, the cash ISA is a vital tool to enable people to save a robust emergency savings net without having to worry about tax. Reducing the tax incentives for the cash ISA isn’t the answer and could expose diligent savers to tax. The big barrier to encouraging greater investment is not the ISA framework. We should concentrate on building confidence to invest
Giving retail investors more opportunity to take part in IPOs could also help more people dip their toe into investing. Historically they have been locked out of the bulk of brand-new listings, with the privilege reserved for institutional investors. When there is retail participation there is often huge interest. At the Raspberry Pi IPO, HL was significantly over subscribed. The demand from retail investors to buy into the equities market is there, and regulatory change should support this demand. Boosting retail investment on the stock exchange will have wider market benefits providing depth and liquidity, as well as boosting interest in investment with the wider public, unlocking further capital for UK-listed companies.
The other issue is the number of tech companies being targeted by overseas firms, rather than staying the course and growing on the London markets. It’s clear the UK is a hub for innovation and entrepreneurship, and it can incubate firms during the early days. But the lack of access to easy capital, and the fragmented nature of government support for scale-ups, has made the environment more difficult. The UK tech sector has also suffered from a risk averse attitude, with investors more prepared to put their money into companies with proven track records, rather than back arguably better, but more nascent innovations.
Then there is the pressure of the fast-moving world of technology, which is becoming ever more competitive. A UK tech firm may have the best invention of the moment, but entrepreneurs often fear that time is ticking. The worry is that it won’t be long before at least one of the tech giants develops a competing service, into which they can plough vast sums to seize control of the market and destroy any competition. So, there’s been an urgency to accept on current offers, for fear the opportunity may pass.
Such is the scale and financial might of the global tech titans that it’s almost impossible for even the most innovative start-ups to create moats around their business that a mega rival cannot cross. There are hopes the government’s AI opportunities action plan will help provide more support in the scale up scene, with an aim of increasing the amount of capital available to ambitious companies. The talent is emerging from UK universities; it’s just harnessing the skills and providing the right long-term support which is needed.’’