The UK must overhaul its approach to executive pay, stock market risk and other “cultural issues” if it wants to arrest a sharp decline in the City of London’s initial public offerings, the author of a landmark report on listings reforms said on Wednesday.

Lord Jonathan Hill told the House of Commons Treasury select committee that regulators had “moved quickly” on the recommendations of his eponymous March 2021 review, but that planned changes in areas such as rules for company prospectuses were just one part of the broader ecosystem in which new listings in London would live or die.

“The regulatory side, the corporate governance side, attitudes towards remuneration, cultural issues, attitudes towards risk, all of these are interlinked, and I think we need to think of all of them,” he told the cross-party panel of MPs.

Hill was responding to a question on what if anything can be done to reinvigorate London’s stock markets after a string of big-name companies, including semiconductor giant Arm, shunned listings in the City in favour of New York’s deeper and more flexible capital markets, where companies typically command far higher valuations.

London attracted just four IPOs in the first quarter, marking its sixth-worst quarter for listings since 1995, data from Refinitiv shows. The decline began long before that, with London accounting for just 5 per cent of global IPOs between 2015 and 2020.

Hill said that the “most important” factor to address was how little UK pensions funds invest in UK stock markets, an issue he said was gaining “momentum”. The government is pushing pension funds to invest more cash in areas that help the economy, such as young start-up companies and infrastructure. Currently investment in these areas, by defined contribution plans, is low.

Julia Hoggett, chief executive of the London Stock Exchange, told the committee she would “absolutely agree” with Hill’s assessment on the dynamics at play in the City’s listings market. “There isn’t one silver bullet, we do need to work on all of those . . . pieces to make it really work because this is an ecosystem,” she said.

The UK’s corporate governance rules had “reduced the flexibilities that companies have to operate in”, she said. SoftBank-owned Arm complained that onerous rules set by the Financial Conduct Authority on reporting of related-party transactions had been a key driver of its choice of New York for its blockbuster listing.

Other companies say the acceptance of multimillion-dollar pay packages in the US, versus the outcry they generate in the UK, also makes New York a more attractive place to list their businesses since recruitment is easier. “Remuneration is an issue . . . which we do need an open conversation about,” Hoggett said.

City minister Andrew Griffith has framed the reform of the UK’s listing rules — and its broader financial regulation revamp known as the Edinburgh reforms — as developing a “philosophy of risk” that was “positive” and meant not beating “ourselves up about inevitable failures”.

Hoggett said: “There is a degree to which we have sought to so protect people from the downside that we haven’t always exposed them to the upside,” adding: “We need to recognise that stock markets are about deploying risk capital.

“And that risk capital is . . . going into making the investments that produce the products, the solutions, the innovations, the jobs, and indeed the growth, that powers the economy.”

Additional reporting by Josephine Cumbo

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