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The Exchequer Secretary to the Treasury (Gareth Davies)
It is a pleasure to serve under your chairmanship, Ms Nokes. I congratulate my right hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on securing the debate, and I thank him for his remarks about our capital market system, which I will address in some detail.
I am grateful for the opportunity to set out the key role that capital markets play not just in our UK economy, but in wider society, which I have long spoken about not just in this House, but in my career in financial services before coming into politics. No matter the size of the company or how many countries it operates in, behind every major listed company are thousands or even millions of investors who own a stake in that company, and own a stake in a country. A FTSE 100 or S&P 500 stock will be owned by teachers, nurses, firefighters and lots of other regular people who, by owning stocks through their pensions, have a stake in the success of the company and the wider economy, and a means to benefit when both those things do well. It is an extension of what Noel Skelton, a former Member of Parliament for Perth, said in the 1920s when he talked about a property-owning democracy. It is the idea that if people have a stake in our economy, they become more engaged with the economic outcomes of the country, which in turn become more equitable, because they engage and affect normal people in more prescient ways. In that way, strong capital markets that people can easily access, interpret and utilise can be an incredible tool for broad-based engagement with our economic systems.
As my right hon. Friend alluded to, capital markets also have a more immediate impact through the allocation of capital, facilitating investment, which drives growth and jobs, and creating investor returns. That helps to build a market that is buzzing with opportunity and optimism and attracts the best and the brightest, bringing new energy and ideas to our economy, all of which drives economic activity in every part of the country. It is worth pointing out that of the about 1 million people employed in the financial services industry, two thirds are outside our capital city. That is not always appreciated.
However, London is an international powerhouse in its own right, with a foreign exchange market three times the size and a derivatives market about 50% bigger than those of the United States, making the UK a genuine global hub for investment. In 2021, more than £17 billion of capital was raised for firms in the UK—a 15-year high. Over 120 deals were completed in that year alone. Of course, we have not been immune to the limited IPO activity caused by market turbulence across 2022 and 2023, yet in 2023 the London Stock Exchange raised more capital than Frankfurt and Amsterdam—the two largest exchanges in the European Union—combined.
More importantly, this Government recognise that there is always more we can do to improve our markets and make them even more open and competitive. My right hon. Friend mentioned that the first step on our reform journey was, as the Economic Secretary to the Treasury stated in a speech last week at Bloomberg, to diagnose the problem—to acknowledge that there was a problem and then seek a way to fix it. That started with Lord Hill’s 2020 UK listings review, alluded to by my right hon. Friend the Member for Vale of Glamorgan, which builds consensus on how to boost IPOs and capital raising on UK capital markets. He will be aware that in 2021, at Mansion House, we launched the wholesale markets review to consider how we could use our new-found regulatory freedoms to make UK markets more competitive.
Next came our solutions to the problems that we had diagnosed. I am happy to say that reform has progressed across all those areas, not only in our legislation and our regulatory regimes, but in the culture and mindset of the Government and of regulators, which is not to be underestimated. The Financial Services and Markets Act 2023 delivered the wholesale market review’s most urgent changes. As a result, firms can now trade in the most liquid market and get the best price for investors. We have also set statutory growth and competitiveness objectives for our regulators and introduced new accountability mechanisms to ensure delivery against those objectives. Following the passage of FSMA 2023, we are taking forward a host of new initiatives, such as the digital securities sandbox, which will test the use of distributed ledger technology in trading and settlement. That is just one of a huge range of reforms coming in the near future.
The result of those reforms is that after three and a half years, we are now within sight of making the UK’s public markets match fit again, which my right hon. Friend and I both seek. But he is right that we must go further and use this as an inflection point to ensure that we are delivering on the promise and opportunity presented by our capital markets. That is why we are taking further steps now and supporting companies through every stage of their investment lifecycle.
First, we will ensure that companies can scale up effectively so that they are primed and ready for listing. To do that, as my right hon. Friend alluded to, we are establishing a world first—a new class of exchange. The private intermittent securities and capital exchange system—catchily named Pisces for short, thankfully—will be established by the end of this year. He asked for assurance, and I can assure him on that timing. The Pisces platform will give private companies better access to capital markets and break down the artificial regulatory cliff edge between public and private markets. This development will allow investors to take advantage of the structural shift to private markets, rather than suffer from it.
Secondly, we want to ensure that, when companies choose to list, the process is as easy and frictionless as possible. A fortnight ago, the Economic Secretary took the UK’s new prospectus legislation through Parliament, paving the way for the FCA to complete its entire rewrite of the prospectus regime’s rulebook to deliver on the recommendations of the Hill and Mark Austin reviews, which my right hon. Friend the Member for Vale of Glamorgan referred to. That will boost the operating environment for our capital markets in two important ways: it will increase the pool of investors participating in capital raises, and it will enable firms to raise larger sums of capital more quickly.
Finally, we want to ensure that, once listed, companies are matched with the best investors for their offering. We welcome the FCA’s commitment to consult on the changes to the unbundling rules this spring. That was a recommendation of Rachel Kent’s investment research review. Subject to the outcomes of that consultation, the FCA will make relevant rules in the first half of this year. We aim to revive the research market by delivering more efficient and accurate pricing, in particular for small and medium-sized enterprises.
In the autumn statement, the Chancellor announced his plans to explore options for a NatWest retail share offer this year, and a wider ambition to get the public buying more shares. My right hon. Friend the Member for Vale of Glamorgan rightly said that we should get Sid investing again. For those who do not know, that is a reference to an advertising campaign that only Members of a certain vintage will appreciate—it is entirely lost on my private office.
I will move on quickly to some of the wider issues. My right hon. Friend talked about Charlie Geffen’s accelerated settlement taskforce, which will upgrade our back-office operations for the 21st century.
This year will mark substantial progress in all three of the investment cycle stages that I have set out. Alongside the regulatory reforms, the Government are looking to reverse the trend of British investors—both institutional and individual—shifting away from investing in UK equities. As my right hon. Friend points out, the statistics are pretty stark. They have been on a downward trend for many years, and that is particularly evident in our pension funds. As he rightly said, at Mansion House the Chancellor began the process of announcing the Mansion House compact, which will see 11 major defined-contribution pension schemes allocate at least 5% of their default funds to unlisted equities, unlocking capital investment in high-growth companies. With the pension reforms now in train, we expect the pension pot of a typical DC saver to increase by as much as £16,000 over the course of an average career.
This agenda is underpinned by a commitment to openness, competitiveness, growth, dynamism and innovation in financial services, as first set out by the then Chancellor, now Prime Minister, in 2021. When those principles are properly applied, they have an impact far beyond financial markets. They can be a way to open the doors of our boardrooms to a far wider range of people, democratising our capital markets and inspiring individuals throughout the country to take an active interest in our markets, while making sure that more people have experience and an understanding of the risks and rewards that are such a vital component of our capital markets.
Our capital markets in this country are a source of great pride, including to me, having worked in them. It is right that we all feel pride in the UK capital market structure, but I want more people to speak with pride about our stocks—the stocks that they own today or may own in the future. Our capital markets have helped shape the country that we live in. They have helped us make this country more prosperous, they have created more jobs and they have made us more competitive overseas. The Government are working to ensure that that remains the case for many years to come by making our markets more attractive, competitive and, crucially, accessible. I am proud to be taking forward that important work with colleagues from across the House, and to have been able to speak about it today under your chairmanship, Ms Nokes.
Question put and agreed to.