The UK needs to accept it is in a global stock market competition
Rupak Ghose
"If I [could] get a better product in the UK, I would list in the UK." Those are the words of Revolut co-founder Nik Storonsky – and they point to a lesson that the UK would do well to heed: after decades of decline, the UK stock market is, to use trading jargon, a price taker not a price maker on the global stage.
That means policymakers need to at least level the playing field to allow the UK to compete.
The number of publicly listed companies has shrunk on all stock markets, including the US. But the IPO drought is particularly acute in the UK, as is the number of companies moving to the US.
The backdrop to this is that the UK’s economy has shrunk to only 2% of global GDP and the country simply doesn’t have the attractive economic growth that countries like India can boast or the corporate sector dynamism of the US.
Hence, in part, companies, including Wise, which is moving its primary listing to the US, and Arm Holdings, which is listed in the US and has a market capitalisation of US$150bn, are heading across the Atlantic – further examples of the UK losing British listings as companies graduate from startup to large cap.
The average age of FTSE 100 companies is higher than US peers. This is not unique. MIT’s Andrew McAfee notes that publicly listed companies worth at least US$10bn and founded in the EU in the last 50 years had a combined market capitalisation of about US$430bn while the cohort in the US were worth US$30trn.
This doesn’t mean that great companies can’t succeed if they’re listed in the UK, though the UK's high-quality growth stories (for instance, Rolls-Royce and RELX) are most often in traditional industries.
Indeed, as global institutional investors are the main buyers of UK equities they will usually arbitrage away any significant valuation gap.
Wise's valuation on the London Stock Exchange of 33 times estimated 2025 earnings is already a premium to high-quality US-listed fintech names like Nubank.
LSE stocks trade at a discount to the US adjusting for industry mix – ie, tech stocks – but in most cases US peers are faster growing or generating higher returns. Comparing JP Morgan with UK banks or Exxon with BP is an uncomfortable exercise.
Taxing time
That’s not to say that listing in the US is a panacea. Many UK growth companies that gained unicorn status and listed in the US imploded or saw deep share price falls. These include Paysafe, Freeline Therapeutics, Cazoo, Farfetch, Wejo, Babylon Health and Soho House. But the nature of growth companies is outlier returns from a few that outweigh the misses, with Marex a case in point where share price strength has been underpinned by earnings momentum.
Chancellor Rachel Reeves' plan to consolidate fragmented UK pension schemes looks sensible. It should bring scale benefits that may allow greater focus and resources to find and support the next Wise or Arm.
This is a long-term plan, though.
A quicker circuit-breaker would be tax policy. The increase of capital gains tax on UK shares in the October budget was unhelpful even if it is hard to see it being reversed quickly. More realistic is a change to ISAs (a UK tax-efficient individual savings account), following through on the previous government’s plans. This could include restricting tax breaks to UK equities (and not international equities) and also having higher limits for the tax break on UK equities versus cash ISAs.
I have long advocated for the abolition of stamp duty on UK share transactions – this is a tax that doesn’t exist in the US.
Liberalising governance
Embracing dual share classes is also crucial. There is debate about whether the rules governing US markets and indices make it easier for dual share classes and this was the tipping point for Wise founder and CEO.
But as far as the overall UK stock market goes there is a broader point: UK investors are far too evangelical and bureaucratic about matters like dual share classes and CEO compensation. It is not a question of what is ideal but of the realpolitik of competing in a global marketplace where the US is the price maker.
Can you imagine a FTSE 100 populated by Arm, DeepMind, Darktrace, Revolut and Wise? Liberalising governance and providing tax breaks linked to companies keeping their HQ in the UK and listing on the LSE seem like a small price to pay to make something like that possible. After all, losing listings has repercussions beyond the City of London’s money men to the real economy.
The golden age of the UK stock markets didn’t happen in isolation. As someone who was involved in UK stockbroking in the late 1990s and beyond, I remember the benefits the UK got from London emerging as the “New York of Europe” and how the onerous Sarbanes-Oxley Act in the US in the post dotcom years gave the UK a regulatory arbitrage. There’s a lesson there.
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