Reviving the City: What Will It Take to Make UK Capital Markets Great Again?
Once a dominant force in global finance, the UK’s capital markets have lost their shine in the post-Brexit era. Amid dwindling IPOs, regulatory stagnation, and talent flight, the question looms large: how can Britain reclaim its role as a top-tier financial hub?
The United Kingdom, home to one of the world’s oldest and most influential financial centers, finds itself at a crossroads. London’s storied capital markets, long hailed as the beating heart of Europe’s finance industry, are struggling to keep pace with global rivals. IPO activity is subdued, trading volumes are lagging, and the gravitational pull of talent and innovation is drifting elsewhere.
The question confronting the City of London—and Westminster policymakers—is simple yet existential: How can we make UK capital markets great again?
A Market in Decline
In the 1990s and early 2000s, London was the IPO destination of choice for international firms, especially those from emerging markets. But the post-Brexit era has seen listings and investor confidence wane. Major tech and biotech firms now favor New York or Amsterdam, and even flagship UK firms are exploring listings abroad.
In 2023, Arm Holdings, the UK-born chip giant, famously snubbed the London Stock Exchange (LSE) for a Nasdaq IPO. This was a symbolic blow—proof, some say, that Britain’s capital markets are no longer the global magnets they once were. Root Causes: Beyond Brexit
While Brexit accelerated the decline, it’s not the sole cause.
Experts point to a combination of: - Regulatory rigidity: The Financial Conduct Authority (FCA) and LSE have been slow to adapt listing rules to attract high-growth, tech-driven companies. - Pension fund conservatism: UK pensions invest far less in domestic equities compared to global peers, reducing support for homegrown companies. - Tax policy uncertainty: Unpredictable capital gains and corporate tax shifts have dampened investor sentiment.
- Low risk appetite: Cultural caution among UK investors favors dividends and stability over growth and innovation. How the US and EU Pulled Ahead
The U. S.
remains dominant, not just because of its size but due to a vibrant ecosystem of venture capital, deep institutional liquidity, and founder-friendly governance. The EU, meanwhile, has made strides in unifying its capital markets through the Capital Markets Union, making it easier for firms to access funding across borders. In contrast, the UK is still grappling with fragmented oversight, slow-moving reforms, and a perception of being risk-averse and bureaucratic.
Reform Proposals: What Needs to Change
To revive the City’s appeal, industry leaders and policymakers are advocating for structural and cultural shifts:
1. Overhaul Listing Rules: Simplify dual-class share structures and reduce free float requirements to attract founder-led firms. 2.
Unlock Pension Capital: Reform pension regulations to encourage more equity investment in UK startups and mid-caps. 3. Enhance Tech Ecosystems: Incentivize IPO-ready growth companies to scale in the UK with tax credits, innovation grants, and targeted regulatory support.
4. Boost Financial Literacy and Retail Access: Encourage broader retail participation in equity markets through ISAs and fintech platforms. 5.
Rebrand the City: Launch a global campaign to reposition London as a capital for innovation, not just tradition. Voices from the Market
“We need to stop clinging to past glory and start building a market for the future,” says Helena Masters, managing director at a UK asset management firm. “That means being bold on tech, open to founders, and agile in regulation.
”
Mark Austin, author of a government-commissioned review into UK listings, emphasized that reforms need to happen swiftly or risk ‘permanent marginalization. ’
Political Will Is Crucial
Prime Ministerial attention has recently returned to capital markets, with Rishi Sunak's government supporting reforms aimed at increasing IPO activity and reducing red tape. But critics argue that follow-through has been slow, and opposition leaders have proposed even bolder interventions—including mandatory UK pension allocations to domestic equities.
Cross-party consensus on market revival remains elusive, with debates over financial regulation autonomy, EU equivalence, and the role of international investors still unresolved. What Success Could Look Like
If reforms are implemented decisively, London could reemerge as a dynamic, globally attractive capital hub. Key indicators would include: - A resurgence in IPO activity—especially among high-growth firms.
- Greater pension fund participation in equity markets. - Increased retail and fintech-driven market engagement. - Improved global rankings in capital market competitiveness.
Conclusion: A Critical Juncture for the City
The City of London has proven its resilience over centuries—from war to recession, from Big Bang deregulation to financial crises. But resilience is not destiny. To make UK capital markets great again, a coordinated effort is needed: bold regulatory modernization, deeper investor engagement, and a cultural shift toward risk, innovation, and growth.
The foundations are still there—but only decisive action will rebuild the superstructure. If the UK fails to act, others will fill the vacuum. But if it succeeds, the City could not only reclaim its crown—but wear it better than ever.
