FTSE 100 CEOs have warned that Jeremy Hunt needs to end the “vicious cycle” of Britain’s stock market decline.
Julia Hoggett is the chief executive officer of the London Stock Exchange. She, along with the members of the Capital Markets Industry Taskforce and dozens of other people, have urged the Chancellor, to introduce reforms that will revitalize investment in the city.
HSBC boss Noel Quinn, and BP Chairman Helge Lind were both signatories to the letter sent by the taskforce to Mr Hunt. The letter expressed concern over the new figures that showed £1.9 trillion had been taken from UK stock exchanges over the last 23 years by UK pension and Insurance companies.
The warning was issued as Hotel Chocolat, a retailer in the UK, was sold to US conglomerate Mars. This is the latest business listed to be bought by a foreign company.
The London Stock Exchange has seen a flurry exits, , combined with a lack of listings,, which have raised concerns about Britain’s ability to compete on the international financial stage.
Some people have claimed that pension funds investing in overseas companies, instead of London-based firms, has contributed to the decline of the City.
The letter stated: “As is the case with retail investing, the decline of UK pension funds in investing in future UK business has also been starker and in contrast to other G7 countries. This is despite pensions receiving over £60bn in taxpayer support.”
This puts pressure on Mr Hunt, as he prepares to deliver his Autumn Statement in a week.
The letter called on the Chancellor, in order to increase the speed of consolidation plans for smaller pension schemes to “superfunds”, which would allow them to take greater risks and potentially generate higher returns.
The letter called on the Financial Reporting Council (FRC) to have a clear goal to increase competition in order to make London’s markets more attractive to investors.
It said that “as a matter of principle, UK listed companies should not be subjected to restrictions that non UK companies listed on high quality exchanges aren’t subjected to unless these can be justified.”
As revealed earlier in the week, The Capital Markets Industry Taskforce has also supported proposals to increase the annual Isa allowance for savers wanting to invest in UK listed companies by £5,000.
Catherine Graham, finance director at British cybersecurity company Darktrace was one of the signatories to the letter.
She said: “We must create a regulatory incentive that encourages a balanced view of risk and return, rather than avoiding risk at all cost.”
This follows warnings that Britain’s small and medium-sized stock market is shrinking rapidly, undermining London’s reputation of a global financial centre.
Hotel Chocolat’s £543m deal with Mars, the US confectionery company that bought the UK retailer for a premium of over £$500m, fueled concerns on Thursday.
The Snickers and Maltesers manufacturer offered 375p, which was more than twice its close price of 140p just before the deal.
Richard Bernstein of Crystal Amber Asset Management, the asset manager that leads the Hotel Chocolat deal, stated the sale highlighted the “absurdity’ of UK valuations.
He said: “If Mars believes the business is valued at 375p then it is.” There are so many others who have been left to their own devices.
Jonathan de Mello, a retail expert, said that the offer was “astonishing”. He added that it was an “extraordinary premium” for a company with “limited future growth potential in UK and questionable international performance”.
This is just the latest example that international investors are increasingly eager to buy undervalued London stock.
Morgan Stanley, an investment bank, says that the UK’s corporate bonds and stocks are the lowest in the world due to the pessimism about the UK economy.
Peel Hunt, an investment bank, warned last month that more firms are leaving London than entering.
Charles Hall, Peel Hunt’s head of Research, said: “We’re currently in a doom cycle.”
A think tank founded by Margaret Thatcher urged Jeremy Hunt that tax breaks currently in place for businesses until 2026 be made permanent.
The Centre for Policy Studies stated that full expensing, which allows companies to offset their investment costs against tax bills, could boost long-term growth by 0.9%.
Treasury sources said that the Chancellor wants to extend or make permanent full expense and is looking at what can be afforded ahead of the Autumn statement.
The statement was: “For every year that you extend, it’s an extra £10bn. These are not small figures.”
Treasury spokesperson said: “Our Mansion House Reforms unlock £75bn of equity funding to assist high-growth companies scale up and grow.
“This is in addition to the measures we are taking to create an open, sustainable, technology-advanced, and global competitive financial services sector.
This includes regaining the control of our financial rules, delivering Edinburgh Reforms that will open our capital markets and changing Solvency II so as to inject billions in the insurance market.