London’s ‘existential’ crisis is of its own making – boosterism won’t save it

Jeremy Hunt did two things of note this week. One was to make the claim that Britain will create “a $1 trillion Microsoft”; the other was to call finance chiefs back to discuss what could be done to make the UK market more appealing to domestic and international investors.

The two are closely related. When, a decade or so ago, London was said to be neck and neck with New York in terms of world financial hegemony, it was always instructive to visit Manhattan and see those towers with the mighty US corporate names sitting on top.

They were head to head. Really? Well, yes, they were, because New York was the gateway to America, with a vast free market on its doorstep – witness those brands that started and grew there.

London was also a springboard, an entry point to a giant bloc on its own doorstep, similar in size; one in which the traffic in goods and people was equally without constraint.

London was prospering because it was New York’s equivalent. The latter had a continent to service, and so did London. Talk to any head of a US investment bank following the “Big Bang” in 1986 – when the City of London opened up to foreign banks – and ask them why they were here, and they will cite the proximity and accessibility of the EU.

Until the Big Bang, the City operated along tightly regulated, restrictive lines. Then, Margaret Thatcher deregulated, and a financial services industry that had been ticking along nicely for decades suddenly exploded in size.

Foreign bankers, lawyers, investors, businesses – they all flocked to London. Just as NYC led the US, London led Europe. And not just Europe, but the Middle East and Africa. EMEA was ours.

Other EU financial centres could not compete. They did not have the language, infrastructure or attractions the UK capital offered. They had the EU, of course, but London had more.

Not now. They’re on the up, New York is on the up, and London is on the way down.

Where once the London Stock Exchange could count on more than 100 flotations a year of British and overseas companies – with the fees this would generate – this year so far, the tally is five. A sixth, computer hardware maker Raspberry Pi, is due to list. Asian fashion giant Shein is also said to have selected London as its stock market location.

That may represent the turning of a corner. It could, though, be a false dawn, as each has their own reasons for choosing London. Raspberry Pi is British and wants to remain so. Shein was going to float in New York, but feared a backlash from US human rights protesters over the working conditions in its factories, plus its Chinese antecedents were more likely to provoke hostility in the US.

The other trend that is causing alarm is firms already listed in London deciding they’re better off elsewhere. There has been a flurry of companies upping and leaving. Currently, all eyes are focused on Shell.

The oil major has made no secret that the market conditions in New York are more favourable – its peers there enjoy 30 per cent higher valuations. If Shell were to go, the effect could be existential – it’s that serious – with other London stocks feeling they have no choice other than to follow suit.

It matters desperately to Britain as a whole. Financial services, which are built around the City being a major international draw, account for 10 per cent of the entire UK economy. Some £90bn in tax, half of the NHS budget, is derived from the Square Mile.

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New York makes it easier for companies to list. The US is a society that puts more faith in enterprise; it is more optimistic and less cautious. Companies are worth more over there than they are here. Not only does this mean that Americans invest in America, first and foremost, but also, in recent years, they have been taking advantage of low prices and snapping up UK businesses.

Hunt must address this problem if he is going to make the UK an attractive place in which to invest. That means persuading UK institutions to invest in the UK – something they are not doing at present. Why? Because UK shares are more fragile. Its companies no longer have a guaranteed market on their doorstep.

Britain has isolated itself and is reliant on separately struck free trade deals to help its companies grow. Agreements have been reached, but so far, they are largely replacing the ones lost when we exited the EU, and are not new. As for the two hoped-for large ones – India and the US – they have yet to materialise.

Which is why talk of producing a homegrown Microsoft is fanciful. The fact that Microsoft is one of the biggest companies in the world, along with the likes of Apple, Meta, Alphabet, Amazon, and the other US behemoths, is precisely because of that US market.

The founders of these companies were able to expand quickly across America, devoid of hindrance, tapping into a market of more than 300 million people. They were also free to exploit a more forgiving culture – several had earlier start-ups that failed.

They dusted themselves down and began again – and no one, not least the lending banks, thought any worse of them. In fact, the opposite occurred, and the previous experience was treated as a rite of passage.

Anyone setting up in the UK cannot achieve anything on the same scale. We have only 67 million people to exploit. After that, it’s a case of going to the countries where we’ve signed free trade deals, or negotiating charges and restrictions. Businesses do so, too, in the knowledge that, should they suffer a setback, they will be punished for it.

Our politicians will not admit so, and much of our media will also not say so, but what is occurring is of our own making. Still, why acknowledge our mistakes when there’s always boosterism to fall back on? Investors are deserting us, but we’re going to create a new Microsoft. We are, we really are...