Is the City Saved by Rachel Reeves?

Terry Tanaka claims that while Chancellor Rachel Reeves' proposed tax cut would be welcome, it is far from sufficient

There have been some hints in recent weeks that the London IPO market is finally reviving. Shawbrook, a digital bank, announced on Monday that it would list its shares for about £2 billion in the UK. The Princess Group, a food and beverage company that produces canned tuna and Branston's pickle, announced last week that it was thinking about going public in London. The company is valued at about 1.05 billion. Last Friday marked the Beauty Tech Group's market debut. Despite how welcome that rush of activity is, nobody should be distracted from the bigger picture by it.

Still, the London market is in terrible shape. It has fallen to 22nd place globally for new equity issues, ranking lower than even Mexico and Qatar, according to a report released last week. The total number of companies listed on the exchange has decreased from nearly 2,500 ten years ago to just over 1,500 today, while the amount of capital raised through initial public offerings (IPOs) has dropped to its lowest level in 35 years. Many businesses have chosen to accept takeovers, many have moved their listings to the US, and many entrepreneurs starting new businesses have concluded that a quote in London is no longer worth the trouble or the cost. Things could get much worse. There are already warning indications that the pharmaceutical behemoth AstraZeneca may move its listing to the United States, and one of its competitors could easily acquire BP.

Rachel Reeves, the chancellor, might have realized that something had to be done. Leaks suggest that in addition to the barrage of tax increases, she may include a small tax cut in her budget next month. Newly listed companies may be exempt from stamp duty for two or three years, or the levy may be eliminated. Shares could be purchased by investors without paying the Treasury 0.5 percent of their value. If Reeves had finally realized that tax cuts can spur growth while tax increases frequently stifle it, that would have been fantastic. She might begin using the same reasoning elsewhere.

However, Reeves needs to be much more audacious. Complete elimination of stamp duty is necessary. When compared to other markets where individuals can trade stocks freely without having to pay the government anything, a levy imposed each time a share is purchased or sold is a significant competitive disadvantage. Yes, it brings in just over £3 billion, but the Treasury is already short on funds. However, if the City becomes irrelevant on the international stock markets, much more tax money will be lost in the medium run. The levy dates back to a time when the London market was so significant that it was able to pay taxes while other markets were exempt. We are long past those times.

She needs to cut the red tape, Rachel Reeves.

The jumble of governance codes that have accumulated over the past two decades must also be abandoned. Quoted businesses are subject to a wide range of regulations, such as those pertaining to executive compensation, diversity on the board, and environmental and social goals that are either nonexistent for private businesses or much less stringently enforced on competitors' markets. Despite their good intentions, these regulations come at a high cost. Along with taking up a significant amount of management time, they offer no real advantages. The world could follow London's example and return to a more straightforward system.

Why not provide business owners with a tax break for listing in London, to sum up?

If a founder chooses to float their business in the city, they may be exempt from capital gains tax. That would be a compelling reason to sell it to a private equity firm or a foreign buyer. Perhaps some of them will decide to remain in Britain rather than relocate to the US or Dubai.

The stock market in London is in danger of going extinct. There are many other businesses in the city, such as debt issuance, fund management, and insurance. The harsh reality is that every significant financial hub on the planet has a thriving equity market at the heart of its operations. It is going extinct in London. It will take drastic measures to save the LSE; a small change to stamp duty won't cut it.