US subsidies make UK financial reform urgent, business warns

Huw Jones
Updated ·2 min read
FILE PHOTO: A general view of skyscrapers in The City of London financial district seen from City Hall in London, Britain

By Huw Jones

LONDON (Reuters) - U.S. clean technology subsidies are sucking capital from Europe, making it more urgent to improve London as a global financial centre, business bosses told UK lawmakers on Wednesday.

The Inflation Reduction Act (IRA), which offers $369 billion of tax credits, research loans and grants for clean technology investments in the United States, is making it harder to persuade companies to list in London, they said.

"If we don't use domestic capital, the IRA will win. It's the biggest shift in competitive dynamic in my career," GlaxoSmithKline chair Jonathan Symonds told a Treasury Select Committee hearing on why UK companies are listing in New York instead.

Pension funds in Britain, which have long preferred safer assets like government bonds to stocks, need consolidation to achieve scale for investing in start ups, Symonds said.

"A single Canadian pension fund invested more in one UK private company in 2021 than all of our pensions funds in private companies in the UK in the same year," added Julia Hoggett, CEO of the London Stock Exchange.

The decision by UK chip designer Arm to list only in New York has deepened soul searching in the City of London after Brexit left the UK financial sector facing added competition from Paris, Frankfurt and Amsterdam.

"The effect of what's happening through the Inflation Reduction Act across the whole of Europe is like a dirty great hoover on full suction mode," said Jonathan Hill, who authored a government-backed report on reforming UK listing rules.

"It's reinforcing a mentality that the U.S. is sort of where you want to be for business," Hill said.

Britain has already eased listing rules in line with Hill's recommendations, and plans further changes.

Hoggett said obstacles need removing to improve research on companies, streamline primary market rules, increase the amount of available risk capital and ensure governance rules for listed companies are in line with competitor countries.

"We have created an environment where comply or explain has become comply or else," Hoggett said. UK listed companies disclose whether they follow governance best practice or explain why they do not, but critics say flexibility has been lost.

(Reporting by Huw Jones; Editing by Alexander Smith)