What's Happening?
The London Stock Exchange is experiencing its fastest rate of shrinkage since 2010, with companies increasingly moving to Europe and the U.S. Rachel Reeves aims to revive the exchange by encouraging stock ownership and portfolio management. The Confederation of British Industry (CBI) proposes tax breaks and looser bonus rules, but these plans do not address the underlying issue of low business investment and a broken growth model. British pension funds have retreated from UK equities, shifting to gilts or the U.S. tech boom. The stock exchange is failing to provide sufficient access to capital, and listed companies are not investing to boost growth.
AD
Why It's Important?
The struggles of the London Stock Exchange highlight broader issues within the UK's economic model, which is skewed towards wealth extraction rather than investment. This has led to stagnant growth and diminishing prosperity, with dividend payments growing faster than real wages. The British economy excels at rentierism but lacks investment to boost productivity. Firms listed in Britain are vulnerable to foreign takeovers, and successful companies are heading overseas to raise money. The CBI's proposals may help, but public investment and government-backed regional banks could be necessary to support upstart companies outside London.
Beyond the Headlines
The situation calls for political imagination to address the economic model's flaws. Mandating employee directors on company boards and taxing share buybacks could encourage firms to invest in productive activities. However, the current government lacks the political will to implement such changes.
