UPDATE: Ahead of the November 26, 2023 Autumn Budget, UK officials are under pressure to combat the nation’s pervasive economic pessimism. In a critical Budget briefing, Steven Fine, chief executive of Peel Hunt, urged Rachel Reeves to implement radical measures to stimulate growth and restore confidence in the UK’s financial future.
During her recent speech, Reeves acknowledged the “big challenges” facing the country despite a previous £40 billion tax increase aimed at addressing fiscal shortfalls. Fine described this pessimism as a “British disease” and called for a transformative Budget focused on “economic nationalism” to revitalize the struggling London market.
Fine’s urgent message highlights the detrimental impact of past policies, particularly the tax hike on employer national insurance, which he claims has stifled future investments. “A sensible Budget that allows companies to plan is what we’re crying out for,” Fine stated, emphasizing the need for policies that foster domestic economic growth.
One of Fine’s key concerns is the alarming trend of capital leaving the UK. He pointed out that defined benefit pension funds’ investments in UK equities have plummeted, from 70 percent in the 1990s to less than 6 percent today. This sharp decline, especially post-2008 financial crisis, has raised red flags about the UK’s capital loyalty compared to countries like Australia and Canada.
To combat this, Fine advocates for “home bias” policies that prioritize domestic investments. Earlier this year, Reeves introduced the Mansion House Accord, which encourages pension funds to allocate at least 10 percent of defined contribution funds into the UK private market. Fine believes using the FTSE 100 as a benchmark could significantly influence investment decisions.
Additionally, Fine is calling for an overhaul of cash ISAs, noting their “sensitive” nature. He suggests replacing the tax break on ISAs with a new one focused on interest paid on mortgages for first-time buyers. “This could help a younger generation get on the housing ladder,” he stated, advocating for solutions to address the widening gap between average house prices and wages.
Another pressing issue is the stamp duty on shares, which Fine believes is a major deterrent for companies considering London listings. He remarked, “It makes no sense whatsoever” to impose this tax on stocks and shares, especially as the London Stock Exchange struggles to recover from a record low in IPO fundraising, with just £160 million raised in the first half of 2023.
Reeves is reportedly weighing a holiday on this tax for newly-listed companies, a move Fine views as a positive step. However, he warns that the government must do more to prevent companies from delisting, as seen with the recent exit of fintech giant Wise.
As the Autumn Budget approaches, the pressure mounts for Reeves to take decisive action. The financial community is keenly watching, hoping that the Chancellor can not only address the immediate concerns but also set a course that fosters long-term confidence in the UK market.
This developing story underscores the urgency for effective economic policies in an increasingly challenging landscape. Stakeholders await Reeves’ response, eager for a Budget that can truly begin to heal the “disease” of British pessimism.
