Spring Budget 2024

Baroness Moyo Excerpts

Monday 18th March 2024 Lords Chamber

[Baroness Moyo (Con)]

My Lords, like many others, I saw some encouraging measures to address investment in Britain in the Chancellor of the Exchequer’s Spring Budget. There is, after all, a widely recognised view that Britain needs much more investment to power its economic growth plans. In this debate, I will reflect on what more needs to be done to make the UK an attractive destination in the eyes of investors, noting that a burden of regulation and bureaucracy is not an attractive elixir. My comments are influenced by my roles as a corporate board member and a member of the Oxford University endowment investment committee, as I have disclosed in the register of interests.

We are all familiar with the prevailing narrative of the UK’s anaemic economic growth. Although Britain’s GDP doubled in the generation from 1995 to 2020, with economic growth averaging 3% per year, the outlook for the years ahead is weak. Specifically, UK economic growth is not expected to exceed 2% between now and 2028, according to the IMF. Meanwhile, the Government’s policy levers are hampered by high public debt and deficits, notwithstanding the constructive trend line mentioned earlier. For example, at the end of September 2023, UK government debt was 100% of GDP, compared with less than 40% of GDP 20 years ago. Of course, the economy remains plagued by a cost of living crisis, with inflation remaining stubbornly at 4%, twice as much as targeted by the Bank of England—things that we are very familiar with. The economy is further constrained by interest rates at 5.25%.

However, it is not only the UK’s macroeconomic picture but the UK’s investment landscape that is challenged. Put simply, Britain is not attracting sufficient capital from investors—retail, institutional, domestic or international—to keep the UK’s companies and capital markets as strong as they should be to propel economic growth. As the Chancellor himself acknowledged, domestic share ownership by institutional investors, such as UK pension funds, is worryingly low, having fallen from 32% in 1992 to a record low of 1.6% in 2022. As someone who grew up in the emerging markets, people always said to me, “Before you invest, think about what the locals are doing”. The fact that even UK pension funds will not invest in this economy, for whatever reason, is an incredibly damning sign.

Furthermore, just 23 initial public offerings took place on the London Stock Exchange in 2023, the lowest since 1995. Think about that for a moment: we have had a pandemic and a financial crisis, and last year was worse for IPOs than any of those periods. International investment flows are also bleak; for example, foreign direct investment into the United Kingdom was just 1.4% of GDP in 2022, according to the World Bank. That contrasts with the period of 1995 to the 2008 global financial crisis, when UK foreign direct investment was regularly 5% or more of GDP.

According to a recent study, UK equities have been trading at a 40% discount to stocks from the rest of the world, underscoring the lack of appetite from investors for investing in the UK. It is critical that UK companies can once again be at the forefront of investors’ minds when they are allocating capital and that the stock market becomes attractive to companies seeking listings. I welcome the Chancellor’s new measures to channel more investment into UK equities and to introduce a new UK ISA to support savers. That has the potential to attract up to £4 billion a year of investment capital from retail investors.

I am also aware that the Chancellor has previously laid out commitments to attract higher levels of pension fund capital to unlisted UK companies, particularly in his Mansion House speech. Some have raised the question of whether it is right to compel investors to allocate capital to UK equities or whether it is in fact better to incentivise them. With that question in mind—and recognising my noble friend the Minister’s earlier comments on full expense leasing, small business support and VAT threshold changes—I would like her to state what specific plans this Government have to address the UK’s underperformance in attracting investment. What specific plans do the Government have to incentivise institutional investors, both domestic and international, to allocate more capital to UK equity markets and UK companies?