Britain has a long and proud history of innovation – stretching from the Agricultural and Industrial Revolutions right through to modern successes in the fintech and life sciences sectors. Unfortunately, in recent years another trend has emerged, of start-ups incubating ideas in the UK before listing their businesses overseas, primarily in the US. Of the more than 200 companies which have left the London Stock Exchange since 2016, 88 left in 2024 alone. The end result is less work for a financial services industry which, with the related professional services sector, brings in 12% of the UK’s annual tax take.
Stories abound that the Chancellor, not satisfied with having put the British economy in a tax-and-spend doom loop, is set to introduce even higher taxes on banks, picking an easy political target rather than promoting British business. Instead, the Treasury should be taking action to address the structural causes of the London Stock Exchange’s very own migration crisis: fragmented pension capital, weak retail investor engagement, punitive transaction taxes, regulatory weaknesses and restrictive listing rules.
One of the most under-utilised sources of long-term investment in the UK is pension fund capital. Compared to large institutional funds abroad, the UK’s pension sector is fractured and small. This fragmentation increases overhead costs, reduces negotiating power and limits the capacity to invest in innovative, riskier domestic enterprises (since smaller funds have less scope to hedge against risk).
While the Government has announced limited reforms to consolidate some public sector pension funds, a more radical approach is needed given the sheer scale of the untapped pool of capital. A more consolidated pension infrastructure would allow funds to invest confidently in domestic growth – through the early scaling of start-ups and infrastructure investment. We should consider models from the Netherlands (sectoral multi-employer schemes) and Australia (tax incentives for domestic investment), while resisting Labour’s attempts to mandate a particular level of domestic investment, given the importance of respecting fiduciary duties and governance frameworks. As others have noted on this site, we should also look at reversing the immensely damaging changes to pensions tax credit which Gordon Brown introduced, which removed billions from UK pension funds – capital which could have been invested in British business.
The UK’s 0.5% stamp duty on share transactions is the highest among comparable major economies – and is widely regarded as a drag on trading activity and capital raising. As even the The Guardian has acknowledged, it is irrational to penalise UK investors for buying UK-listed shares, while applying no equivalent tax on investments into overseas stocks. In practice, this biases capital flows away from domestic equities. As Dan Neidle’s Tax Policy Associates have argued, stamp duty ‘holds back the FTSE and increases the cost of capital for businesses’. As readers will know, reducing transaction taxes can have a dynamic impact through increasing the number of transactions and tax take overall; there is evidence that a phased abolition of stamp duty on shares would raise more for the public purse than its retention.
Even if abolition proved too hot a political potato, a reformed framework might exempt UK retail investors from stamp duty when buying UK-listed shares or introduce a tiered system, so that frequent institutional trades still pay a fee, but patient capital investing in growth shares is rewarded.
A vibrant stock market depends not only on institutions, but also on an engaged public. The contrast is stark: in the UK, less than 25% of people invest in equities; in the US, it is closer to two-thirds. This is partly a reflection of low financial literacy – but also of systemic disincentives and cultural inertia, with crypto investments backed by YouTube influencers but no equivalent focus on retail investment in domestic growth shares.
Addressing this problem will take time but is crucial to the long-term economic health of the country. We should consider a national ‘Invest in Britain’ campaign, with clear, accessible materials encouraging investment in home-grown companies, and the Government should partner with fintech platforms and wealth apps to lower barriers to entry (including through reduced minimum investment levels and a more accessible user experience). Financial institutions should be encouraged through tax incentives (such as on stamp duty on shares) to set up financial education programmes, particularly in schools and communities, so that investing becomes part of civic and financial literacy. The UK should also encourage pension pot consolidation, so that auto-enrolled funds are not scattered among several smaller funds but instead employees have greater control over where those funds are invested, boosting personal responsibility and financial literacy more generally.
Overregulation – or regulation whose boundaries are unclear – is cited by CEOs (including those at fintech firms) as a deterrent to remaining UK-based. Revolut’s leadership, for example, points to ‘extreme bureaucracy’ as a factor driving start-ups away from the UK.
The UK takes a principle-driven approach to regulation – this avoids a thicket of regulation but can cause uncertainty (with accompanying legal and other compliance costs). Other jurisdictions, including the US, Hong Kong and Singapore, take a more rules-based approach.
No regulator holds a monopoly on wisdom and the solution is to take the best of both approaches. We should consider clearer ‘safe harbours’ or regulatory ‘guard rails’ for high-growth sectors, particularly fintech, to reduce ambiguity. It may also be appropriate to, in certain areas, offer businesses clearer rules or guidance regarding compliance, even if the underlying regulation remains principle-driven.
One reason many start-ups avoid London or list abroad is that the UK’s listing rules and shareholder culture place considerable constraints on founder control, executive remuneration, and ownership structure. Yet global peers routinely allow multi-class share structures (so founders retain strategic influence), more flexible executive pay and freer incentive alignment. This is particularly the case for technology companies and start-ups, which only further pushes away these businesses from the UK market.
We should consider removing the existing time limits on founder shares, so that investors rely, as they do in the US, on market disclosure and discipline, rather than regulation. There is also a case for softening the UK’s binding ‘say on pay’ rules, especially in growth sectors, to offer more flexibility in aligning competitive executive compensation with growth (while preserving shareholder protections). Given the relative reluctance of London to advertise itself as a listing venue internationally, the Government should couple reforms with the launch of an international campaign to promote UK-based stock exchanges as the ‘home of start-up capital’ with fast-track IPO routes for start-ups in key sectors. A new, more relaxed regime has recently been established for non-UK companies listed elsewhere who are seeking a secondary listing in London – as the FT recently noted, this should also be an option for companies founded in the UK, to avoid driving away these businesses entirely.
The flight of start-ups and capital from the UK is not an inevitable trend, but a feedback loop – of less capital, dampened confidence, fewer listings and declining international appeal. Policymakers, regulators, pension trustees and business leaders can and should work together to tilt the equilibrium back in favour of Britain.
Barring some form of constitutional crisis, Andy Burnham will become Prime Minister. We do not even know who his new Chancellor will be, let alone what their policies and priorities are. However, whoever gets the top job at 1 Horse Guards Road, they should make tax reform their top priority if they want to bring […]
Schools do not exist in isolation from the economy. The number of young people who are not in employment, education or training (NEET) is, in large part, a function of the economic conditions in which they leave education. When growth is weak, entry-level opportunities are scarce, employers are cautious and the public finances that pay […]
Across the UK, millions of people rely on the railways to travel. From 2024 to 2025, there were 1.7 billion passenger rail journeys, of which 1.08 billion were completed within a single region. And yet all too often, local rail has been neglected, with funding prioritised for London and the South East. As a result […]
