By Darius McDermott, managing director of Chelsea Financial Services
The UK’s economy and its stockmarket have been tarnished over the past decade by faltering economics and volatile politics. The economy has lost £140bn since Brexit, global allocators have taken flight from the UK market, and London’s status as the global financial hub has been undermined.
To get Britain back on track, we have a four-point plan for whichever party, or coalition, gets into Number 10. We believe these policies represent a bold vision for a prosperous UK.
They are not just about economic growth – they are about building a resilient, innovative and dynamic UK. It is also a potential future where businesses are empowered to drive growth.
Mandate pensions to invest in UK equities
We would like to see a shake-up of rules that would mandate pension funds to deploy more member cash into UK-listed companies.
Their exposure to UK equities has dwindled dramatically over the past 25 years, with the share of the UK stock market owned by UK pensions and insurance companies shrinking from a healthy 39% to a meagre 4%, according to New Financial.
The sad reality is that British pension funds contribute far less to the UK economy than international counterparts do to their own domestic markets. The chancellor needs to encourage pension funds to deploy more of their capital in a way that boosts Britain’s economy.
While US equities power on, the unloved UK stockmarket continues to lag. Microsoft and Apple are now both worth more than the entire FTSE 100. It is time to re-think how we can stimulate the FTSE.
By moving retirement money away from UK stocks, institutions have hurt the UK’s stockmarket because more money is leaving than coming in. We would like pension managers put more money into UK companies and the government to drive an investment target.
Supercharging investment through VCTs
It looks likely that we may be entering a higher tax environment to spur growth – almost certainly under a Labour government. Venture Capital Trusts (VCTs) allow investors to access tax relief and potentially attractive returns while also helping to boost enterprising British companies.
They have been instrumental in funding innovative start-ups and high-growth companies. However, to fully harness their potential, we must enhance the incentives for investing in VCTs.
The bottom line is that increasing tax reliefs and raising funding limits for VCT-eligible investments will attract more capital to promising start-ups.
Investing in VCTs will foster a collaborative ecosystem where established businesses support the growth of emerging industries. This symbiotic relationship will drive innovation and economic dynamism.
If we want to continue to encourage Britons to take risk, then they need to be given the appropriate incentives.
Cutting red tape
The British economy is being stifled by red tape, a lot of which is entirely unnecessary. Excessive bureaucracy chokes innovation and competitiveness. These regulations, while intended to promote transparency, have often led to significant administrative costs and complexities that deter investment. The labyrinth of reporting requirements can overwhelm smaller firms, stifling their ability to attract and manage funds effectively.
One clear example is the burden of cost disclosure regulations on investment trusts. Britain’s investment trusts may move their listings to Switzerland to avoid the onerous EU rules over cost disclosure. We are at serious risk of losing one of the stock market’s crown jewels.
As it stands, asset managers must ‘double count’ and disclose investment trust costs as part of their own costs, making trusts appear more expensive. The excessive red tape not only increases operational costs but also diminishes investor confidence and discourages the establishment of new trusts.
This environment hampers the flow of capital into high-growth, infrastructure and sustainable sectors, undermining broader economic goals.
More widely, we need to reduce paperwork, expedite approval processes, and create a legal framework that supports, rather than hinders, business activities. By embracing digital solutions for regulatory compliance, we can make these processes more efficient and less burdensome. A business-friendly UK is a prosperous UK.
Scrap stamp duty for smaller companies
Britain is globally uncompetitive when it comes to stamp duty on shares. The UK charges 0.5% when you buy UK-listed shares (except those listed on AIM), while the US charges zero and France levies 0.3%.
Scrapping this extra cost for smaller companies would be a very easy way to make the UK market more competitive, and a change that could be implemented quickly by the chancellor.
And most importantly, the economic benefits would outweigh any tax haul over the long run according to recent research from the Centre for Policy Studies.
We call on the incoming government to scrap stamp duty for all companies – or at the very least mid and small-cap companies.
