In 1903, the chairman of the Union Bank of London declared, “We are the financial center of the world.” At the time, the City of London dominated global finance, with a stock exchange as valuable as those of New York and Paris combined. Today, however, London’s stock market is shrinking at its fastest pace since 2010. While Glencore’s decision to keep its London listing provided a brief boost, it won’t reverse the trend. More companies are leaving London for Europe and the U.S.
Rachel Reeves aims to revive the exchange by promoting stock ownership and encouraging individuals to manage their own investments. Meanwhile, the Confederation of British Industry (CBI) suggests tax incentives and relaxed bonus rules. Both plans rely on deregulation, but neither tackles the root issue: Britain’s struggling stock market reflects—and worsens—persistently low business investment and a broken growth model.
In theory, stock markets help companies raise capital, which they invest to boost productivity and economic growth. Investors, including pension funds and savers, benefit from this growth, as do workers through higher wages. But in Britain, the system isn’t working. Companies aren’t investing enough, and pension funds—once major buyers of UK stocks—have shifted to government bonds or U.S. markets. In 1997, UK pension funds held 53% of their assets in British equities; today, it’s just 6%.
Business growth has slowed, while shareholders demand ever-higher dividends, creating a cycle of stagnation. Between 2000 and 2019, dividend payouts grew nearly six times faster than wages, and UK firms now spend less on R&D than their European peers. The British economy excels at extracting wealth rather than investing in productivity.
As a result, UK-listed firms are vulnerable to foreign takeovers, while successful companies like Arm choose to list abroad. Despite political pressure, Arm opted for a U.S. listing, where its value has soared—benefiting overseas investors.
The CBI wants Reeves to push pension funds back into UK stocks. While more investment would help, it won’t fix an economy skewed toward wealth extraction. Public investment is needed—perhaps through regional banks supporting startups outside London. Reeves should also push firms to invest more, perhaps by taxing share buybacks or requiring employee representation on boards. But such solutions demand political vision—something the current government lacks.
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