Budget opinion - Is the London Stock Exchange in trouble?
Sarah Hogan
Specialising in helping business owners, business minded and executive level individuals plan their life goals, their exit strategy and business sale, and their effective financial strategy post sale or retirement.
Let me first say that these are my Thursday morning musings; they are not advice, they are not facts, they are a thought, an opinion of mine only. If you have individual concerns or advice queries, seek full financial advice.
But there is something to consider.
Yesterday was an uneventful budget day. Just how we financial planners like it. Despite people saying, 'They might scrap inheritance tax', to which my response has always been, 'Highly unlikely; it brings too much revenue in; please don't wait for them to scrap IHT and die in the meantime'. Ok, so I only actually said the first bit, but I am thinking of the second.
It was nice, however, and unexpected to see the higher rate of capital gains tax coming down from 28% to 24% as of April 6, 2024. That will be a welcome change for second property owners, although it is combined with the reduction in the capital gains tax allowance from ￡6,000 in the 23/24 tax year to ￡3,000 for the 24/25 tax year.
Use it or lose it, people.
But was there an undertone of concern in the budget?
As financial planners, it is our job to look and think long-term. In recent weeks and months, as I read the financial press, I have seen a trend in stories about the issues the London Stock Exchange (LSE) appears to be having in comparison to other stock exchanges.
Bloomberg reported that in 2023, companies raised just ￡1b on the LSE, the lowest since 2009.
City AM reported that:
'The combined market capitalization of London Stock Exchange-listed firms has shrunk by 17 percent since 2013, in the latest sign of the exchange’s struggles.
Analysis of data by investment platform XTB also revealed that the number of firms listed on the London Stock Exchange has fallen by more than 25 percent over the last decade, with the pace accelerating in 2023.
The number of companies listed in London decreased in nine of the last ten years, while the total value of companies listed on the LSE only grew—in nominal terms—in three of the last ten years due to the pace of delisting.
Joshua Raymond, director of XTB, said the data “identifies a problem and suggests that it is getting worse.'
Not only that, but in comparison to other markets, especially the S&P500, over the long term, the FTSE is seen to be lagging behind in total returns (source: corporate adviser).
Then, in the Budget yesterday, Jeremy Hunt introduced UK investment disclosures for local government and defined contribution pension schemes. What did he actually say?
“I remain concerned that other markets, such as Australia, generate better returns for pension savers with more effective investment strategies and more investment in high-quality domestic growth stocks,” the chancellor said in his speech to parliament.
“I will introduce new requirements for defined contribution [DC] and local government pension funds to disclose publicly their level of international and UK equity investments. I will then consider what further action should be taken if we are not on a positive trajectory towards international best practice.”
The Financial Conduct Authority will consult on the reporting requirements in the spring, the Treasury said. Meanwhile, the government said it planned to introduce “equivalent requirements” for the Local Government Pension Scheme “as early as April 2024.”.
“The government will review what further action should be taken if this data does not demonstrate that UK equity allocations are increasing,” the budget document stated.
And then he brings in the 'UK ISA' allowance of ￡5,000...
"The Mansion House reforms announced in 2023 also sought to support and encourage a savings culture across the UK. That is why the government is announcing the launch of a new UK ISA and British Savings Bonds, which will provide opportunities to save while supporting investment in the UK.
The UK ISA will support savers and open up UK investment opportunities for individuals. The UK ISA will be a ￡5,000 allowance in addition to the existing ISA allotment and will be a new tax-free product for people to invest in UK-focused assets.
The government will consult on the details."
Whether the current government will be in power long enough to consult on the details is a different matter, but the sentiment is there.
So should we be concerned?
Short-term, no. There is nothing you or I, as individuals, can do about the troubles the London Stock Exchange may or may not have. Does it concern me for the future of the UK and my children's futures? Absolutely, but as we have seen in the last 5 years, a lot can change in a short space of time.
On the flip side, the fact that the Chancellor is bringing these things out means they are aware of the issues and are trying to resolve them. Maybe he is inspired by the success and innovation of other markets and wants to bring a piece of that to the UK. Who knows?
Or maybe they are completely unrelated.
Maybe I just didn't get enough sleep, and its all a conspiracy.
Who knows. Its just my opinion, after all.
For our full budget updates, keep your eyes on our KBA FS Ltd company page and follow me for more morning musings (and other practical content also).
Sarah Hogan
Morning muser (and also Chartered Financial Planner and Company Director of KBA, The Financial Planning Company).
Forever thinking about the future for our clients and our generations to come.
Assisting Financial Planning professionals to better their careers and advocate for a fair society - 07817 661587 [email protected]
1 年It's because you're willing to give your opinion that people will trust your intentions. Very important trait in my opinion.