When I was about 14, I made my first visit to the US, a holiday on the West Coast that took in Disneyland in LA. Having spent my childhood visiting Barry Island’s and Porthcawl’s fun fairs, I was blown away by the bigger, shinier, cleaner but much more expensive US equivalent. Driving the dodgems to the soundtrack of the Bay City Rollers was never the same again.
Even at that impressionable age, the US appeared to be light years away in terms of innovation and the execution of a wide range of services, entertainment and goods. I knew McDonald’s, Kodak, Kelloggs and Coca-Cola. Teenagers in the US were less familiar with Tizer, Wimpey, Findus and Amstrad!
Of course, the US has scale and greater access to capital. That’s helped enable many great, and frankly many mediocre, US companies reach global markets. It also explains why the health of the land of Uncle Sam dominates so many of our team’s conversations (something we discuss in our latest The Sharpe End podcast).
When Margaret Thatcher’s ‘Big Bang’ deregulation of the London Stock Market took effect on 27 October 1986, that helped support the growth of the LSE for many years. It made the UK a place overseas companies looked to list to raise capital.
But things are very different now. Why are so many companies looking to move their listings away from London to the US and, to a lesser extent, Europe? Well, it’s not Brexit in my view, let’s get that out of the way early.
Over the past couple of decades, there have been some fundamental structural headwinds. Pension reform leading to significantly less institutional investment, globalisation, sectoral biases (there isn’t much large tech in the FTSE 100), unhelpful political interventions – plus a sense the UK just isn’t business friendly and yes, OK, there’s possibly some post-Brexit sour grapes among overseas investors.
I guess fund managers like me are part of the problem. UK equities currently represent only 8% of the Strategic Growth Fund (the lowest percentage since its inception back 2009). The earnings of 2% of these stocks, Ashtead and Ferguson (the company formerly known as Wolseley), are dominated by their North American businesses. Ferguson has actually moved its prime listing to New York.
What’s needed to reverse this trend? There are no easy answers, but I would like to propose a few initiatives that could make a difference:
- Abolish stamp duty on transactions
- Establish a tiered UK ISA – say £5k in large cap funds per annum and £15k in small cap funds
- Give authorised pension funds tax concessions on dividends paid by UK companies
- Have a coherent and consistent policy on corporation tax – and make it competitive
- The government should signal that they support the call for CEOs’ remuneration to be benchmarked on a global basis reflecting the global markets in which they operate – so UK companies can compete for talent
- Review the UK’s listing rules so they’re more competitive with the NASDAQ and New York Stock Exchanges
This isn’t an exhaustive list. The UK government needs to take a lead on this issue and make it clear it will support the City over the long term given its importance to UK GDP. Until this happens, I fail to see how the current drift away from the UK market can be stopped.
Barry Island never recovered from its glory days despite the glamour provided by Gavin & Stacey. We can only hope that Keir & Rachel are more successful in exciting interest in the UK. Now there’s an idea for a sitcom…
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