An empty Budget for the City

Jeremy Hunt wants the spring Budget to jump-start the stalled equity culture in the UK and promote London as a venue for quoted shares. But what’s striking about measures announced today is that they are both mostly inconsequential and mildly protectionist.

The centrepiece is a British-only Individual Savings Account or “Brisa” (not to be confused with the Portuguese motorway operator), with a £5,000 tax-free allowance for investments in UK-listed shares. But that’s not all. The UK chancellor has indicated that pension funds will be required to disclose their allocations to the UK, and also confirmed plans to offer a slug of the government’s NatWest shares to retail investors.

The Brisa will make little difference in itself. If the chancellor had eliminated the Cash Isa and increased the Stocks & Shares Isa allowance to £25,000, it would have signalled a strong statement of intent by reserving the benefits of tax exemptions for investments in risk assets. Presumably, this was politically unpalatable, but when the top-paying Cash Isas offer a risk-free return of over 5 per cent, it’s hard to lure the lion’s share of Isa money into equities. 

Moreover, an additional £5,000 allowance reserved for London-listed shares will have virtually no impact on investment. Buying a stock on the secondary market brings no new money into a company; it might — at the margin — push up share prices.

Moreover, the largest companies listed in London derive the bulk of their revenues and profits from overseas:

Depending on the final rules, the Brisa may apply to London-listed investment trusts dedicated to foreign equities. It might apply to FTSE 100 members including IAG, Glencore and B&M (incorporated in Spain, Switzerland and Luxembourg respectively) but is unlikely to apply to Danish-listed Orsted or Getlink of France, both of which rely on the UK for more than half their revenue.

There’s nothing wrong per se with supporting the London Stock Exchange and local brokers, but the Brisa is a minor piece of industrial policy, not a catalyst for domestic investment.

The pension fund announcement is of a similar ilk. UK pensions have lower allocations to domestic equities than pension funds in many other countries. The ideal solution would be to make UK-listed shares more attractive, not shame or browbeat pension funds into ploughing money into investments they don’t otherwise want to make. But those are more painful steps for a government strapped for cash. So, for example, the government instead leaves in place windfall levies on the North Sea oil and gas industry (a key constituency of London-listed companies) and the highest transaction tax of any major stock exchange.

And while the intention to offer NatWest shares to the public harks back to the Tell Sid campaign of the 1980s, the world has moved on. Retail punters already have cheap access to diversified portfolios, such as index trackers, in a way they didn’t have 40 years ago. Presumably, the government will offer a substantial discount to tempt retail to buy into a single-stock offering, but any discount (compared to the price for dribbling out shares) represents a disguised subsidy. It requires more than a Kierkegaardian leap of faith to believe that this one-off offering of a bank whose share price has significantly underperformed its peers will rekindle the public’s infatuation with the stock market.

The City has a genuine champion in 11 Downing Street, and it is depressing the Chancellor has so little room to manoeuvre that he is reduced to announcing and amplifying measures that will make little difference and that smack of parochialism at odds with the broader vision of London as a global financial centre.

Further reading:
— The UK ISA announcement: pretty much meaningless (FTAV)