The idea of another sudden, transformative burst of Big Bang-style deregulation is a fantasy. The City needs long term policy that encourages and incentivises investment, writes Charlie Conchie
In an essay to mark the 20th anniversary of his sweeping reform of London’s financial markets in 1986, Nigel Lawson made several things clear: one was that the package of measures known as the Big Bang was initially drawn up to avoid a damaging antitrust probe into the London Stock Exchange.
Another was that the structural issues threatening to drag the exchange into a regulatory mire were not the primary issue – rather it was their consequences.
“The problem was that these restrictions in practice ensured that the stock exchange was woefully under-capitalised,” Thatcher’s former chancellor wrote in 2006.
His proposed changes were technical remedies on the face of it – scrap fixed commissions on trades, ditch single capacity rules restricting the roles of brokers, open up membership of the London Stock Exchange to foreign firms – all delivered alongside a major automation programme led by the LSE. But they were reforms designed with an overarching aim: get more money flowing into the market.
After a mass retreat by pension funds from the domestic stock market, a wave of take-private deals from cashed up foreign buyers, and a dearth of IPOs, Lawson’s comments are more prescient than ever.
Lawson’s warning
The idea of a ‘Big Bang 2.0’ has been invoked by several ill-fated Prime Ministers and Chancellors in the past decade to pledge fast and lucrative reform. It is a neat and tempting rhetorical device. But it’s also a redundant one – the easy levers have been pulled and the simple deregulation has been done.
What is needed now are incentives to get capital flowing into the country’s great growth engine again. As a starting point that means removing tax breaks for pension funds investing in equities overseas, slashing the punitive stamp duty on shares and incentivising retail investors to back London-listed stocks.
But more importantly it means a long-term philosophy of market reform and tax policy that encourages and rewards investors for backing London’s markets in the decades to come.
Few are holding their breath in expectation that John Healey will be the man to set that philosophy in motion with his maiden Budget on Wednesday. But he would do well to at least heed another of Lawson’s comments in 2006.
“Britain’s good fortune is that its most successful industry is one of the fastest growing on the planet. But it is also one of the most mobile,” he said.
“Take care not to take it for granted.”