The capital’s stock market is in danger of bleeding out.
Already this year more than 30 London-listed companies valued at £100 million or more have fallen to takeovers, many from overseas private equity or trade buyers.
Some of those “made in the UK” businesses such as Spectris, acquired by New York private equity giant KKR, and Alphawave, snapped up by US semiconductor group Qualcomm, are at the cutting edge of British technology.
At the same time the pipeline of replacements through new listings has ground to a halt, with just one London IPO for a company worth more than £100 million so far in 2025. It is a slow-motion car crash that could accelerate alarmingly if a British blue-chip — a Shell, or an AstraZeneca — decided to scrap their London listing and move elsewhere.
Chronic undervaluation of London-listed companies, particularly as funds have drained out of the UK since Brexit, has been one of the primary drivers of this unwelcome trend.
The recent strong run for the FTSE 100 to all-time highs above the 9,000 mark may temporarily take some of the momentum out of the exodus, but the long-term competitive threat to the City from the likes of New York and Singapore has not gone away.
In our London Unleashed campaign, the Standard has highlighted how the remarkable energy and innovation that made the City the world’s leading financial centre in the decades after the Big Bang of 1986 must be revitalised for the good of the Square Mile, the capital, and the UK as a whole.
Earlier this month, in her generally well received Mansion House speech, Rachel Reeves rightly called for an end to the negativity that has seen millions of British families prioritise low-risk, low-return savings over higher-risk, higher-return investments.
Some commentators, such as veteran City watcher David Buik, argue that Brexit should have been used as an opportunity to establish the City as a global investment magnet outside the world’s major economic blocs through tax breaks and incentives. But it did not happen. So what can the Chancellor do to help rev up the City’s animal spirits as we approach the 10th anniversary of the fateful referendum on the UK’s membership of the European Union?
Many ideas have been proposed. Some favour a cut or even the abolition of the 0.5 per cent stamp duty on purchases of UK shares. This year the tax will bring in about £4.4billion — by 2030 that will rise to £5.1 billion. Yet, however strong the case for axing stamp duty, it is simply not going to happen. It is inconceivable that a Labour government forced to U-turn on £5billion proposed cuts in disability benefits would be allowed by its backbenchers to deliver a tax cut on a similar scale to “City speculators”.
But there are other options that do not cost the Exchequer.
There has been a staggering collapse in UK pension funds investing in UK firms Exchequer. UK pension funds have massively reduced their exposure to UK shares over the past 20 years.
Latest estimates from the Department for Work and Pensions suggest that the proportion of private sector-defined benefit scheme assets invested in UK equities has collapsed from more than 30 per cent in 2006 to less than two per cent by 2023. It is a staggering statistic. While the public has been encouraged to “buy British” in supermarkets and on the high streets, the opposite seems to have happened in the City.
The trend was brought into sharp relief only last month when it emerged that Scottish Widows, which is owned by Lloyds Bank and manages about £72 billion in pension assets, plans to slash the allocation to UK equities in its highest growth portfolio from 12 per cent to as little as four per cent. Yet the pensions industry enjoys extraordinary support from the taxpayer in the form of reliefs now costing around £70 billion gross, roughly the same as the UK’s defence and policing budgets combined. How much longer can that largesse be justified when such a small proportion of pension fund assets support wealth-creating British businesses?
There is increasing clamour in the City for tax relief to be taken away for those that do not reach a minimum threshold of domestic exposure.
As Simon French, chief economist and head of research at Panmure Gordon, puts it: “International diversification is good for UK savers, and very high levels of domestic exposure would be damaging. But there is a danger that the pendulum has swung too far the other way — damaging the prospects for UK firms to grow, innovate, and create jobs.
“A minimum of five per cent exposure to UK equities would stabilise the pool of domestic capital and encourage UK firms to raise growth capital and pay their taxes here in the UK. Put a floor under UK public equity ownership of five per cent among UK pension funds. Not mandation — you can opt out — but you don’t get tax relief.”
Former pensions minister Baroness Altmann goes further and makes the case that pension funds should invest at least 25 per cent of new contribution in UK growth assets in return for their tax relief benefits, calling it “incentivisation, not mandation. Ken Wotton, managing director of public equity at Gresham House, believes a “modest target” of 10 per cent invested in domestic equities by 2030 “could be transformational”. That seems a reasonable target.
A fiscal carrot and stick directing Britain’s pension funds back towards the incredible pool of wealth-creating companies on their own doorstep could be the jolt that brings the London stock market roaring back to life. It would be at no cost to the taxpayer and could staunch the outflow of stock market listings that is doing so much damage to the City’s reputation. Over to you, Chancellor.
