The Lord Mayor is right: funds must be encouraged to invest in Britain

Forget all the fanfare over Rishi Sunak’s so-called new “robust but pragmatic” approach to China set out at the prestigious Lord Mayor’s Banquet at the Guildhall earlier this week.

Of far more importance were the words of the new Lord Mayor himself whose speech was completely overshadowed by Sunak’s latest version of the UK’s China policy, which, let’s admit it, left most of us more confused than before. 

Step forward, then, Nicholas Lyons, the 694th Lord Mayor of the City of London, who had some extremely important things to say on several fronts that really matter to the health of the City and potentially, to the growth of the wider economy.

He started well, softening up his audience, setting out why the City – and the UK – is such a great magnet for investment and talent. As he reminded his audience from the great and good of business and politics, the UK has so much going for it: seven of the world’s top 20 universities, the biggest number of fintech companies and unicorns in Europe by far. And it is still – despite all the recent hullabaloo- Europe’s biggest equity market and the world’s second financial centre. (He didn’t say that as such by the way, that’s me.)

Then came his but, and it was a big one. “Businesses, intellectual property and people are leaving our shores, as they are being acquired by the world’s most sophisticated and well-capitalised asset owners in other global centres such as New York.”

And he’s right. Which is why Lyons was also spot on in calling for the need for regulatory reform and the removal of “structural obstacles” to growth in sectors such as fintech and other high-tech growth companies.

“We need to do more to support the high growth companies that attract talent, grow our economy and will lead this country in future wealth creation – at every stage of their development. To back our science and tech sectors who are so vital for the growth economy.”

Top of the Lord Mayor’s list would be regulatory change so there is an incentive for all investors – private individuals, corporate pension schemes and international asset owners – to invest in British companies. He also called for the setting up of a UK Growth Fund of at least £50 billion to invest in long-term asset classes, enabling investment in infrastructure and the growth economy. 

As he has pointed out before, the UK has the second largest pension savings pot in the world after the US yet only 7% of pension assets are invested in these real economy asset classes. That is in contrast to an average of 19% for the economies with the seven biggest pension pots globally.  If the UK’s pension industry was to move up a gear from 7% to 10%, some £40 billion would be unleashed for new investment.  

He didn’t spell out which reforms specifically he would like to see being adopted so one can only presume that it would be to find ways of enticing pension funds – and other investors – back into the cash equities markets rather than being so top-heavy in gilts, UK government debt. But Lyons believes that recent reforms announced to the Solvency 11 regime are a step in the right direction, making it easier for insurance companies to make long-dated infrastructure loans and should be implemented.

Even more importantly, Lyons argues that far more must be done to ensure British-grown companies list here in London – and to attract more listings from overseas. Accelerating the regulatory reforms set out in the Hill, Kalifa and Austin reviews are another step in the right direction, he says.

So what, you may ask? Isn’t this what all the City bigwigs say when they get to wear their medals and fancy costumes, without doing any of the heavy-lifting required to get such reforms implemented. Will Lyons be any different, and can he persuade the government, as well as the big funds, to push through these reforms? I don’t know the new Lord Mayor – only in office since September – but those who do say he knows his stuff and is deeply committed to pushing through change.

Let’s hope so, as Lyons certainly knows a thing or two about finance. He’s worked in the industry for 35 years and, unusually, has experience across the piste in commercial and investment banking as well as insurance. He is now chairman of Phoenix Group, a FTSE 100 life insurer and pension fund, as well as Clipstone Logistics REIT PLC, which specialises in commercial real estate investment. He is also a non-executive director of BUPA and Convex Group – insurance and reinsurance underwriting – so he really knows the City inside and out, and should know better than anyone many of the obstacles faced by British business.

The Corporation is doing its bit to help. It is setting up the Centre for Finance Innovation and Technology with the Treasury, one of the recommendations of the Kalifa Review which is being led by Charlotte Crosswell, chair of Open Banking and another financial industry veteran who knows the public markets as well as fintech.

While the London Stock Exchange is still Europe’s biggest equity market – despite all the recent reports to the contrary – Lyons is also acutely aware that the public markets have suffered over the last few years for a myriad of reasons. Indeed, London has fallen behind other financial centres as a destination for flotations, particularly of high-growth technology and biosciences businesses, areas where we have some of the brightest brains.

Only this week another of the UK’s most successful software technology companies, Aveva, was taken over by the French group, Schneider Electric for £10 billion despite several of its big investors claiming the price was too low. Aveva is not the only UK market leader in technology to have been snapped up by overseas firms, a move helped by the strong dollar. Chip-maker ARM, Ultra Electronics, Meggitt and Inmarsat have also been taken out by foreign predators.

While Sunak – and his ministers – claim they want the UK to have the next Silicon Valley, they do too little to back up their ambition, despite new powers under the National Investment and Security Act brought in specifically to make it tougher for foreign firms in sensitive sectors to be bought by foreigners.

Paradoxically, Britain does – or did – have its own Silicon Valley and it is just 60 or so miles from Westminster in the Cambridge Fenlands, although you would think they are a million miles away from each other. As anyone with knowledge knows, Cambridge is an outstanding source of talent and innovation with an eco-system that spawns brilliant companies such as, yes ARM and Aveva, both Cambridge born and bred.

Yet, to date, the government has not done enough to protect those national assets from being bought by foreign buyers. It is a particularly sensitive issue right now with British companies still suffering from the discount in share values to their peers post-Brexit, compounded by a strong dollar.

So it’s no wonder that Lyons also called on the politicians and business leaders to show British companies “that we are serious about wanting them here and [will] fight to retain them, as they do in other jurisdictions”.

Quite how they do that, if they are not willing to use the powers they already have more frequently to scrutinise and block takeovers, is a mystery. So far, only one deal has been blocked using these new powers, that of the takeover of Newport Wafer Fab, the Welsh semiconductor firm, by Nexperia, a Dutch chipmaker which is owned by Wingtech, a partially Chinese state-backed company listed in Shanghai.

On a wider note, the Lord Mayor concluded his speech by calling on the financial and professional services industries to play their part in helping people through the cost-of living crisis by providing affordable credit, debt repayment deferrals and premium waivers on their insurance policies.

Whether they will listen or not is a moot point but it would be the right thing to do. What’s more, the Corporation is holding its own financial inclusion summit next year to come up with plans for how the City can help tackle social inequality.

Ironically, the best way to achieve that is pushing through the reforms that Lyons talks about: the more successful British companies we have and keep in the UK, the more innovation there will be, leading to more high-skilled and better paid jobs all around.

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