Wilson report: UK capital market needs to be revamped in order to attract £1tn worth of investment

According to Sir Nigel Wilson, a City grandee, the UK must overhaul its capital market to attract £1tn in investment over the next decade for housebuilding, infrastructure, and new start-ups.

His report published on Friday stated that “the UK economy and its capital market have fallen behind the US ever since the global financial crises”.

Wilson, the chair of Canary Wharf Group will launch the report at a high profile gathering of executives and investors at the London Stock Exchange headquarters. Senior financial industry figures are expected to issue a rallying call to continue efforts to revamp the UK’s failing capital markets.

Wilson has rejected the idea that the UK is in a “doomsday loop” despite its anaemic growth, unusual political instability and outflow of investors from publically listed companies.

The former Legal & General chief executive said that significant action is needed, especially in areas like tax and regulation. He urged the UK government to move forward with plans to encourage UK pension funds and investors to invest in domestic assets.

Wilson said that some changes would require a domestic bias, and that he was unapologetically, unapologetic for it. He argued that other countries, such as France and Sweden, Australia, and the US, use their tax systems and pensions to encourage domestic investment.

This week, the government launched an evidence call as part of its review of pensions.

Wilson identifies several options, including using tax breaks on pensions to encourage investment in UK-based companies and reducing the stamp duty for share trading which generated £3.8bn of tax revenue in 2017.

The report stated that “the UK taxes its retail investors [stamp-duty reserve tax] on UK-listed Aston Martin shares, but not on German-listed Porsche shares or US-listed Tesla shares.”

The new Labour government is scrapping another option Wilson identified — a UK Isa — to channel investors’ money into London-listed shares.

Wilson also said that UK markets should adopt a “risk-on mindset” after having embraced a “ultra-risk-aversion” mentality since the 2008 Financial Crisis.

He said that £100bn in new capital would be needed each year for the next decade, to fund “a period of regeneration” which can support an annual economic growth rate of 3%.

This figure includes investments in the range of £20-30bn per year to build 300.000 homes, £20bn offshore wind and solar energy, £8bn water infrastructure, £15bn growing tech and life science businesses, and £8bn up to £8bn towards electric vehicle rollout.

Wilson said that the UK’s under-investment relative to other G7 countries has had a “cumulative negative effect over a period of time”.

“We are trying to be as successful as Manchester City,” he said, citing that football club’s rise to success after years of investing heavily in its players.

The Capital Markets Industry Taskforce commissioned the “Capital Markets of Tomorrow”, a report that was written by a group of eminent figures, led by Dame Julia Hoggett, who has been pushing for rewriting City rules in order to improve UK markets.

The group has spent a lot of time working to revive the UK’s markets. Wilson, however, stressed the importance of private equity, venture capital and debt markets. Some City executives feel that the reform agenda is too focused on public markets.

Wilson stated that he hopes the majority of UK’s 20 top financial start-ups, such as Revolut or Monzo, will be listed in the UK in five years. To make listing more attractive, it was necessary to reduce the difference between the governance and disclosure standards imposed by public and private companies.

Wilson said, “They are all still private as we haven’t made it attractive enough for them to move into public life yet.”