Britain is failing to convince investors of its many strengths

city of london
city of london

Having been in the financial markets advising companies for nearly 30 years, I believe the “UK equity story” needs a sharp refocus. Articulating a clear and powerful narrative about investing in the nation should be a key priority for the next government.

Whoever takes power on July 5 needs to tell a more compelling and positive story about the attractiveness of the UK.

A report this week by the Institute for Public Policy Research rightly said that “if the economy is an engine, then investment is its fuel”.

It called on the Government to enact measures to boost spending on new factories, equipment and innovations to boost economic activity and incomes. The report also, crucially, signalled that the UK is a worthwhile place for private investment to augment public spending.

Undoubtedly, there are challenges facing the UK and in some quarters there is a general downbeat mood relating to the nation’s economic prospects and global competitiveness.

Brexit fuelled instability

Brexit has been a destabilising factor in recent years. The decoupling of the UK from our largest trading partner has unsurprisingly led many international investors to question our position in the wider European corporate and financial ecosystem.

Like a number of fellow European economies, there has been a relative lack of growth and productivity, compounded by increasing demands on public finances. The upcoming general election creates further uncertainty in the system.

So is the UK uninvestable? No. Quite the opposite. But our narrative is not right.

As a leading G7 country, the UK has a dynamic and relatively stable economy. Britain fosters a unique entrepreneurial culture – a combination of innovation and research that produces leaders in fintech, business services, renewables, technology, healthcare, biotech and artificial intelligence. The UK has also created dozens of unicorns over recent years in these fields.

Our world-leading university system underpins this – producing the graduates and much of the research which drives that innovation forward. It’s an exceptional competitive advantage.

As home to a number of the world’s top scientific research universities, the UK must now support the expansion of funding and growth capital for the research. It also needs to accelerate the commercialisation of these innovations beyond their academic incubators. OSE and Northern Gritstone are great examples of this.

The UK remains a European leader in financial services and private capital and continues to attract many international pools of investment. Consider how many international private equity and sovereign wealth funds have their European headquarters in the UK, and in London in particular.

The private capital concentrated in London remains an enormous source of potential for those wanting to do business here.

Notwithstanding such leadership, the UK has suffered a systematic misallocation of pension savings over the last few decades. Regulation and accounting rules have resulted in hundreds of billions of pounds of pension assets being diverted from equities into lower yielding fixed income securities.

This has exacerbated certain pension deficits, but more importantly caused significant impairment in the growth, liquidity and relative attractiveness of the London Stock Exchange as a destination for leading corporations.

Further, this dynamic has affected the sourcing of private growth capital into the UK’s amazing younger companies. It should not be the case that it’s much easier to raise capital for flourishing UK firms from Canadian pension funds or Singaporean sovereign wealth funds than from our own significantly endowed pension funds.

This need not be an inevitability. I would encourage the next government to take the sensible and decisive step of, in some form, mandating UK pension funds to allocate a relatively small proportion of their assets into UK companies, both public and private.

Such reform and injection of capital would undoubtedly boost the UK’s appeal.

The upcoming changes to the UK listing regime are to be welcomed. But the question remains: are they enough to address the recent drift of companies from the UK to the US?

Support for wealth creation

The UK also needs greater emphasis and recognition of support for wealth and job creation and a tax and fiscal system to support this.

International markets including the US and India have a more open attitude to risk versus the UK. They have more of a focus on capturing the upside versus protecting the downside. It would do us good to follow their example.

This country’s history as one of the leading global financial centres has been one of constant reinvention and renewal, while upholding a reputation for respecting the rule of law and the stability of fundamental systems of governance.

With the election season in full swing, whoever forms the next administration must remember that the City’s continued long-term success is not guaranteed but requires a clear-eyed vision of the future.

So the incoming government, of whatever shade, should not lose sight of the underlying qualities of the UK’s equity story, and be willing to articulate them clearly – and loudly.

Cyrus Kapadia is chief executive of Lazard UK