Rachel Reeves pulled out of an event at the London Stock Exchange yesterday at the last minute to join Keir Starmer in an emergency press conference, responding to Donald Trump’s latest gambit over Greenland.
Reeves planned, in her abandoned address, to unveil newly revamped frameworks, which came into effect on Monday, designed to lead the City of London into a ‘new golden age’. The public offers and admissions to trading regime aims to simplify prospectus rules for smaller and fast-growing firms and reduce regulatory approvals for routine disclosures. Companies will also have to wait less time to complete Initial Public Offerings (IPOs) after the Financial Conduct Authority (FCA) cut the period between issuing a prospectus and listing from six days to three.
Another change makes it easier to conduct follow-on share sales, removing the need to issue a prospectus on secondary issues of up to 75% of existing securities, up from 20% previously. These reforming measures are designed to speed up listings and signal a pro-growth stance from Labour. This is a welcome policy change.
But Britain is attempting to win a global listings race while still running an overly cautious system, with inherent structural deficiencies.
London has been losing ground as a destination for IPOs for more than a decade. Promising British companies increasingly choose to list elsewhere – in New York for its depth of capital and higher valuations, in Amsterdam for its speed and regulatory pragmatism and Dubai for its aggressive incentives. We have fallen behind the likes of Mexico and Indonesia in IPO listings. Tinkering with listing rules is helpful but does not address the wider reasons that firms are voting with their feet.
Britain’s capital markets no longer operate like a competitive marketplace, better resembling a carefully managed obstacle course. Rather than attracting growing companies, government policy has only grown the size of the regulators, with the FCA’s headcount rising from about 3,300 in 2015/16 to over 5,400 in 2024/25 – a 65% increase. If only the listings had increased by as much in that time.
In theory, the purpose of the stock market is simple: to match capital with opportunity, thus allowing investors to take risks and companies to grow. In the UK however, the system has become fixated on minimising downside risk at the cost of sacrificing upside growth.
This imbalance is not accidental. Lifted from the FCA’s website, ‘Since 2023, we’ve had a secondary objective to facilitate the international competitiveness and growth of the UK economy in the medium to long term’. Treating growth as an afterthought, rather than a primary objective ensures it is outweighed, every time, by the instinct to avoid risk.
This fear of failure is often justified by pointing to the supposed excesses of earlier liberalisation. Yet history tells a different story. During the Thatcher-era boom in listings and privatisations, Britain did not experience a wave of corporate collapse triggered by looser rules. Of the original FTSE-100 companies that formed the index in the mid-1980s, only three failed outright: British & Commonwealth, Ferranti and MFI. The majority have been either acquired or merged; and 26 even remain today.
By easing certain listing requirements and signalling a more pro-business direction, Labour hope to make London appear more attractive. But they want to do so without fundamentally challenging the culture that has driven companies away. That is highly unlikely to be enough.
Take New York. The US does not pretend that every listed company will succeed. Dual-class share structures and founder controls have allowed voting power and strategies to be guided by a company’s founders rather than by outside investors focused on short-term profits. Such mechanisms are accepted as the price for backing innovation. But the important cultural difference is in trusting investors to judge risk for themselves.
Amsterdam offers a Continental alternative with practical benefits. Listings can be quicker and companies face less regulatory second-guessing once they are public. This can be seen through certain listing structures, such as US-style Special Purpose Acquisition Company’s (SPACs), where the Dutch have fewer bespoke rules than the British, allowing companies to list with any terms as the sponsor deems fit.
Dubai, meanwhile, shows what happens when political will is aligned with economic strategy. Listings are actively courted and the favourable tax regime is conducive to investment. The UAE more generally shows what can achieved in terms of the financial services industry, when the political will is available.
A meagre nine companies were floated on the London Stock Exchange’s main market last year, far below historic levels, and it’s unlikely that tinkering with prospectus rules will see sizeable increases when so much else works against investment.
Britain’s capital markets suffer from deeper structural and cultural obstacles. A risk-averse investment culture, which includes pension funds favouring bonds over domestic equities, has drained much-needed liquidity and depressed valuations. Combine this with high tax rates, and rising employment and energy costs, and it’s not hard to see why London is a less attractive place to list.
As we’ve seen with windfall taxes and reams of ever-changing red tape, ministers tend to treat successful companies and investors with suspicion. In 1963, British individuals owned 54% of the UK stock market. By 2022, that share had dropped to 10.8%. Hardly a glowing endorsement from domestic investors.
There are of course arguments for regulation. Transparency and corporate governance matters. No serious observer wants a race to the bottom. Yet over the years, Britain has drifted far beyond meaningful, sensible guardrails into a system that can’t be trusted to function without constant supervision.
Neil Shah, market strategist at research group Edison, summarised Reeves’s reforms well.
The proposed changes to the prospectus rules are welcome and reduce friction for companies looking to raise capital. There are, however, many other challenges to overcome before I would hail a golden age for the City of London.
Credit where credit is due, relaxing listing rules is a start, but London’s revival will need more than tweaks and phantom speeches. The City will only thrive when investors are trusted to weigh their own risks, growth is rewarded and failure is treated as part of the game rather than a scandal.
