4 March 2021

The Hill review is a big moment for the City – now ministers must act on it


Assuming one can look beyond Covid, the critical issue which the British economy faces is lack of business investment. This is the forgotten fourth leg of GDP and has been limping along at the worst rate in the G7.

In that regard, the only real long-term thinking in the Budget was the review by Lord Hill, the former EU Financial Services Commissioner and a Centre for Policy Studies board member, into the UK Listing Regime. If we can encourage more companies to list on the London Stock Exchange, more capital will be raised and, in theory at least, investment will pick up.

His review is a very strong, sensible effort, produced at speed and full of common sense. But the real question is whether ministers get on with implementing his recommendations. It is disappointing that some of the changes, which are at the discretion of regulators or require only secondary legislation, were not immediately accepted by the Treasury and instead depend on further consultation. Let us hope that officials just want a few months to get the details right.

Lord Hill’s core affirmation of the importance of strong capital markets, business investment, financial services and a market-based economy for the future of the UK is very welcome, not least because it has been oddly lacking since the Brexit referendum.

The key recommendations are as follows:

  • An annual report to Parliament by the Chancellor on “the state of the City” and giving the Financial Conduct Authority “competitiveness and growth” as one of its statutory objectives.
  • Allowing dual share classes for companies. Alongside ordinary shares, founders could have super-voting shares up to 20 votes each, on condition they are a director of the company and there is a five-year sunset clause. These structures are commonplace in America and attractive to founders of tech companies like Amazon and Facebook, who want to maintain control during their growth phase. Lord Hill also suggests reducing the free float requirement – the shares sold in an Initial Public Offering (an IPO, or flotation) – from 25% to 15% of the value of the company.
  • A review of the cumbersome Prospectus Regime (inherited from the EU) to make it less onerous and inflexible, and loosening the prescriptive rules about forward guidance and research.
  • Use technology to give retail investors better rights and access to IPOs
  • Loosen the rules on Special Purpose Acquisition Companies. SPACs, as they are called, are companies which are floated simply to raise money and they then hunt around for an entity to merge with. This can be a cheap and quick way for the merger partner to float and are all the rage in the US. Over here, SPACs currently have to suspend their shares if they make an offer, jamming up the whole process. Lord Hill wants that rule removed, subject to the SPAC holding an extraordinary meeting of its shareholders to confirm the acquisition.

There are those who will claim that Lord Hill’s recommendations dilute the UK’s high standards of corporate governance, especially in relation to SPACs. The trouble with that argument is first of all, caveat emptor, investors do not have to buy shares they deem too risky; and second, our so-called high standards have, in practice, spawned a bureaucracy which has put off companies listing in London.

One legitimate criticism is that his approach to retail investors is a bit vague. The “mass affluent” are a potentially important source of growth capital for small and medium-sized companies in the UK and some more specific and detailed recommendations would be appreciated.

Overall, a good effort from Lord Hill and what we need now is some passion and urgency from the ministers and regulators in implementing his recommendations.

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George Trefgarne is founder and CEO of Boscobel & Partners consultancy.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.