There can be no Big Bang 2.0 – investors need hard incentives to revive the City

The notion of another Big Bang-style deregulation is a pipe dream, argues Charlie Conchie in an essay commemorating the 20th anniversary of Nigel Lawson's transformative reform of London's financial markets in 1986. Lawson's package of measures, initially conceived to thwart an antitrust investigation, was driven by the realization that the exchange's restrictive policies led to inadequate capitalization.

Technical changes like abolishing fixed commissions, eliminating single capacity restrictions, and permitting foreign firms to join the London Stock Exchange were accompanied by a major automation initiative. However, Lawson's true intent was to stimulate capital flow into the market. In the wake of pension funds withdrawing from the domestic stock market, a surge of foreign takeovers, and a dearth of IPOs, Lawson's words hold greater relevance than ever.

The concept of "Big Bang 2.0," proposed by several ill-fated leaders over the past decade, is both a tempting rhetorical device and a redundant one, as the initial reforms have been implemented. What is required now are incentives to attract capital to the country's growth engine. To achieve this, tax breaks for pension funds investing overseas should be eliminated, stamp duty on shares should be reduced, and incentives should be created to encourage retail investors to support London-listed stocks.

Most importantly, a long-term approach to market reform and tax policy is needed, one that rewards investors for backing London's markets in the coming decades. While few hold out hope that John Healey will introduce such a philosophy with his inaugural Budget, Lawson's wisdom from 2006 is worth considering: "Britain's good fortune is that its most successful industry is one of the fastest growing on the planet. But it is also one of the most mobile. Take care not to take it for granted."