A leading group of City figures are urging the chancellor to accelerate pensions reform, hand a competitiveness objective to the audit watchdog and incentivise retail investors to back British companies “at a critical pivot point… [for] the economy”.
Sky News has seen a letter from the Capital Markets Industry Taskforce (CMIT), an influential panel chaired by Julia Hoggett, the London Stock Exchange chief executive, which calls on Jeremy Hunt to advance his financial services programme in next week’s autumn statement.
In the wide-ranging letter, CMIT warned that British companies were being starved of domestic investment, saying: “The UK has remarkable companies and remarkable potential, but we do not invest in ourselves.”
CMIT, which was established last year to strengthen the competitive position of Britain’s capital markets amid concerns that fast-growing companies are increasingly being tempted to list overseas, includes the chairman of GlaxoSmithKline and chief executives of Phoenix Group and Schroders among its members.
In its letter to Mr Hunt, the taskforce said that Britain now saw far lower domestic investment by UK-based pension funds in domestic capital markets than other G7 countries.
“Capital markets exist to finance the economy, they are founded in many jurisdictions across the world on a strong domestic investor base that invests in its own economy and is incentivised to do so,” the letter said.
While countries such as Canada, Japan and France were significantly overweight when comparing their allocation to equities to the size of their own stock markets, the UK is now substantially underweight, CMIT said.
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It added that the issue was not restricted to public markets, telling the chancellor that in 2021, a Canadian pension fund invested more in one UK private company than the entire UK pensions industry invested in all UK private companies in the same year.
One member of CMIT told Sky News that the situation had become “urgent” and required immediate attention from the Treasury to build on pension reforms unveiled in Mr Hunt’s Mansion House speech earlier this year.
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The issue has acquired greater impetus as a consequence of companies such as Flutter Entertainment, the FTSE-100 gambling group, announcing that it would move its primary listing to the US.
Meanwhile, ARM Holdings, the chip designer, has floated in New York rather than London, despite being a British technology champion.
The CMIT letter warned Mr Hunt that this trend was likely to continue without “proactive policy” attempting to halt it.
“The withdrawal of domestic capital starves our companies of financing, diverts UK tax-payer support to investments in non-domestic companies and ultimately impacts the efficacy of our markets,” it said.
“It also disproportionately impacts smaller and medium sized companies listed on our markets.”
CMIT argued that the Financial Reporting Council should be handed a formal competitiveness objective, complementing those of the City and banking watchdogs.
“This will ensure that the future design of our corporate governance and stewardship regimes takes into account not just good governance and stewardship, but also the attractiveness of the UK capital markets for both existing and potential domestic and international issuers, as well as domestic and international investors,” it added.
The taskforce encouraged Mr Hunt to complete his Mansion House reforms in the autumn statement by facilitating the consolidation of defined contribution pension schemes, and establishing a ‘British ISA’ that would incentivise retail savers to invest in UK-based companies.
It said an independent expert should be asked to compile a report monitoring the extent of UK pension fund investment in domestic companies.
Climate change, the crisis in the Middle East, the continuing war in Ukraine, combating global poverty.
All of these are critical issues for Britain and beyond; all of them up for discussions at the G20 summit in Rio de Janeiro this week, and all of them very much in limbo as the world awaits the arrival of president-elect Donald Trump to the White House.
Because while US President Joe Biden used Nato, the G7 and the G20, as forums to try to find consensus on some of the most pressing issues facing the West, his successor is likely to take a rather different approach. And that begs the question going into Rio 2024 about what can really be achieved in Mr Biden’s final act before the new show rolls into town.
On the flight over to Rio de Janeiro, our prime minister acted as a leader all too aware of it as he implored fellow leaders to “shore up support for Ukraine” even as the consensus around standing united against Vladimir Putin appears to be fracturing and the Russian president looks emboldened.
“We need to double down on shoring up our support for Ukraine and that’s top of my agenda for the G20,” he told us in the huddle on the plane. “There’s got to be full support for as long as it takes.”
But the election of Mr Trump to the White House is already shifting that narrative, with the incoming president clear he’s going to end the war. His new secretary of state previously voted against pouring more military aid into the embattled country.
Mr Trump has yet to say how he intends to end this war, but allies are already blinking. In recent days, German Chancellor Olaf Scholz has spoken with Mr Putin for the first time in two years to the dismay of the Ukrainian president Volodymyr Zelenskyy, who described the call as “opening Pandora’s Box”.
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Ukraine anger over Putin-Scholz call
Sir Keir for his part says he has “no plans’ to speak to Putin as the 1,000th day of this conflict comes into view. But as unity amongst allies in isolating Mr Putin appears to be fracturing, the Russian leader is emboldened: on Saturday night Moscow launched one of the largest air attacks on Ukraine yet.
All of this is a reminder of the massive implications, be it on trade or global conflicts, that a Trump White House will have, and the world will be watching to see how much ‘Trump proofing’ allies look to embark upon in the coming days in Rio, be that trying to strike up economic ties with countries such as China or offering more practical help for Ukraine.
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Both Sir Keir Starmer and French President Emmanuel Macron want to use this summit to persuade Mr Biden to allow Mr Zelenskyy to fire Storm Shadow missiles deep into Russian territory, having failed to win this argument with the president during their meeting at the White House in mid-September. Starmer has previously said it should be up to Ukraine how it uses weapons supplied by allies, as long as it remains within international law and for the purposes of defence.
“I am going to make shoring up support for Ukraine top of my agenda as we go into the G20,” said Sir Keir when asked about pressing for the use of such weaponry.
“I think it’s important we double down and give Ukraine the support that it needs for as long as it needs it. Obviously, I’m not going to get into discussing capabilities. You wouldn’t expect me to do that.”
But even as allies try to persuade the outgoing president on one issue where consensus is breaking down, the prospect of the newcomer is creating other waves on climate change and taxation too. Argentine President Javier Milei, a close ally of Trump, is threatening to block a joint communique set to be endorsed by G20 leaders over opposition to the taxation of the super-rich, while consensus on climate finance is also struggling to find common ground, according to the Financial Times.
Where the prime minister has found common ground with Mr Trump is on their respective domestic priorities: economic growth and border control.
So you will be hearing a lot from the prime minister over the next couple of days about tie-ups and talks with big economic partners – be that China, Brazil or Indonesia – as Starmer pursues his growth agenda, and tackling small boats, with the government drawing up plans for a series of “Italian-style” deals with several countries in an attempt to stop 1000s of illegal migrants from making the journey to the UK.
Italy’s Prime Minister Giorgia Meloni has struck financial deals with Tunisia and Libya to get them to do more to stop small-boat crossings, with some success and now the UK is in talks with Kurdistan, semi-autonomous region in Iraq, Turkey and Vietnam over “cooperation and security deals” which No 10 hope to sign next year.
The prime minister refused on Sunday to comment on specific deals as he stressed that tackling the small boats crisis would come from a combination of going after the smuggling gangs, trying to “stop people leaving in the first place” and returning illegal migrants where possible.
“I don’t think this is an area where we should just do one thing. We have got to do everything that we can,” he said, stressing that the government had returned 9,400 people since coming into office.
But with the British economy’s rebound from recession slowing down sharply in the third quarter of the year, and small boat crossings already at a record 32,947, the Prime Minister has a hugely difficult task.
Add the incoming Trump presidency into the mix and his challenges are likely to be greater still when it comes to crucial issues from Ukraine to climate change, and global trade. But what Trump has given him at least is greater clarity on what he needs to do to try to buck the political headwinds from the US to the continent, and win another term as a centre left incumbent.