Fund flows paint a picture of investors pulling away from the UK, particularly in the small and mid-cap sector. We risk a negative spiral of shrinking numbers and values, and easy pickings for foreign buyers.
It matters because small companies drive growth and jobs, providing more than half of private employment. If the UK loses its allure as a listing centre, the infrastructure around it also starts to crumble, the growth sectors head elsewhere and – eventually – tax revenues suffer.
So what does the Government do to snap us out of this cycle? For starters, rediscover its inner Thatcher and create those conditions for a genuine shareholder democracy with the raft of City reforms currently in the pipeline.
That’s why the recommendations of Rachel Kent’s research review are a good idea: both breaking the cycle of declining investment coverage post MiFID, and giving retail investors the same access to the investment research enjoyed by the institutions. Retail investors shouldn’t have to rely on chat room gossip instead of proper research.
We can do even more, though. Encouraging retail investors to buy shares by making retail offers in IPOs and secondary offerings mandatory needs to happen to genuinely level the playing field.
Unlocking the power of the retail investor should go hand in hand with the more permissive regime and single listing segment proposals outlined in the FCA’s review, removing the red tape that can deter early-stage companies from listing altogether and spurring the market.
What if the Mansion House ambitions to funnel 5pc of pension funds into private businesses were to be extended to smaller listed companies, too? That vicious spiral we’re seeing could soon become a virtuous circle.
If ministers really want to be bold and pull supply-side levers to encourage the City and widen participation, however, they really need to look at the tax system. Despite a lot of rhetoric from politicians about “seizing the opportunities of Brexit”, there has been an unseemly lack of boldness in using the tax system to help a key UK growth engine.
We need both carrots and sticks. Abolishing stamp duty on share trading, for example, would be an added incentive to share ownership.