Chelsea’s mini-manifesto to boost Britain's markets

29 May 2024 — In the last decade, the UK’s economy and its stock market have been tarnished by a faltering economy and volatile politics. The economy has lost £140bn since Brexit*, global allocators have taken flight from the UK market, and London’s status as the global financial hub has been undermined. 

Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and, if you are unsure of anything please contact an expert adviser.

Our four-point plan

To get Britain back on track, Chelsea has a four-point plan for whichever party, or coalition, gets into Number 10.

Firstly, we advocate redirecting pension fund investments towards UK equities, secondly cutting red tape for businesses, thirdly supercharging investment through Venture Capital Trusts (VCTs), and, lastly, scrapping stamp duty for UK smaller companies. 

We believe these policies represent a bold vision for a prosperous UK. This is not just about economic growth; it is about building a resilient, innovative and dynamic UK. It is also a potential future where businesses are empowered to drive growth.

1. Mandate pensions to invest in UK equities

We would like to see a shake-up of rules that could mandate pension funds to deploy more member cash in UK-listed companies. UK pension funds' exposure to UK equities has been dramatically dwindling over the past 25 years. According to the New Financial think tank, the share of the UK stock market owned by UK pensions and insurance companies has shrunk from a healthy 39% to a meagre 4%**. 

The sad reality is that British pension funds contribute far less to the UK economy than international counterparts do to their own domestic markets. The Chancellor needs to encourage pension funds to deploy more of their capital in a way that boosts Britain’s economy.

While US equities power on, the unloved UK stock market continues to lag. Microsoft and Apple are now both worth more than the entire FTSE 100. It is time to re-think how we can stimulate the FTSE.

Institutions managing retirement money have been moving their investments away from UK stocks. This has hurt the UK's stock market because more money is leaving than coming in. We'd like pension managers put more money into UK companies and the government to drive an investment target.

2. Supercharging investment through VCTs

It looks like we may be entering a higher tax environment to spur growth (almost certainly under a Labour government). VCTs allow investors to access tax relief and potentially attractive returns – but also help to boost enterprising British companies.

They have been instrumental in funding innovative start-ups and high-growth companies. However, to fully harness their potential, we must enhance the incentives for investing in VCTs. The bottom line is that increasing tax reliefs and raising funding limits for VCT-eligible investments will attract more capital to promising start-ups. 

Investing in VCTs will foster a collaborative ecosystem where established businesses support the growth of emerging industries. This symbiotic relationship will drive innovation and economic dynamism. If we want to continue to encourage Britons to take risk they need to be given the appropriate incentives.

3. Cutting red tape

The British economy is being stifled by red tape, a lot of which is entirely unnecessary. Excessive bureaucracy chokes innovation and competitiveness. These regulations, while intended to promote transparency, have often led to significant administrative costs and complexities that deter investment. The labyrinth of reporting requirements can overwhelm smaller firms, stifling their ability to attract and manage funds effectively.

One clear example is the burden of cost disclosure regulations on investment trusts. Britain’s investment trusts may move their listings to Switzerland to avoid the onerous EU rules over cost disclosure. We are at serious risk of losing one of the stock market's crown jewels.

As it stands, asset managers must ‘double count’ and disclose investment trust costs as part of their own costs, making trusts appear more expensive. The excessive red tape not only increases operational costs but also diminishes investor confidence and discourages the establishment of new trusts. This environment hampers the flow of capital into high-growth, infrastructure and sustainable sectors, undermining broader economic goals.

More widely, we need to reduce paperwork, expedite approval processes, and create a legal framework that supports, rather than hinders, business activities. By embracing digital solutions for regulatory compliance, we can make these processes more efficient and less burdensome. A business-friendly UK is a prosperous UK.

4. Scrap stamp duty for small companies

Britain is globally uncompetitive when it comes to stamp duty on shares. The UK charges 0.5% when you buy UK-listed shares (except those listed on AIM)***. The US charges zero, while France levies 0.3%. 

Scrapping this extra cost for smaller companies would be a very easy way to make the UK market more competitive, and a change that could be implemented quickly by the Chancellor. And, most importantly, research from the Centre for Policy Studies recently argued that the economic benefits would outweigh any tax haul over the long run. We call on the incoming government to scrap stamp duty for all companies - or at the very least mid and small companies. 

*Source: Mayor of London, London Assembly, 11 January 2024
**Source: New Financial, Unlocking the capital in capital markets, March 2023
***Source: gov.uk, May 2024

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.