A new Labour government must prioritise growing the financial services sector, a key industry contributing over £110 billion in taxes in 2023, equating to 12.3% of total tax receipts. This sector is significantly productive, contributing £243.7 billion to the UK’s economic output and having an output per hour of £97.30 in 2022.
The next parliament will face a fiscal challenge, needing to balance public sector spending, debt reduction, and tax levels. Additionally, the UK must address low investment levels to solve its productivity issues.
To strengthen financial services, the government should focus on modernising UK capital markets, as suggested by Mark Austin’s review and the Digitisation Taskforce led by Sir Douglas Flint. Key recommendations include digitising the shareholding framework by eliminating paper-based processes, which would improve efficiency and transparency. Implementing a single digital register for shareholdings can enhance communication between companies and investors, laying the groundwork for new open finance applications.
Despite being Europe’s largest financial market, there is a disconnect between UK households and capital markets. Increasing retail investor participation is crucial, as seen in Sweden, where household investments in shares are much higher. A modern shareholding framework with a single digital register could empower UK retail investors to participate more actively in the market.
Shortening securities settlement timelines from T+2 to T+1 is another essential modernisation step, following the US’s recent transition. This change would enhance trading efficiency and align the UK with EU and Swiss standards.
Collaboration between the government and industry stakeholders is vital for delivering these reforms. The adoption of new technologies and a fully digitised environment will be transformative for communication, capital-raising, productivity, and innovation in the UK’s capital markets, securing its position as a global financial leader.
Duke Capital Limited (LON:DUKE), formerly Duke Royalty Limited, is a Guernsey-based provider of hybrid capital solutions for small and medium-sized enterprises (SME) business owners in the United Kingdom, Europe and North America, combining the features of both equity and debt.
