By Brendan Callan,CEO of Tradu

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As the UK approaches another budget this Autumn, the country is still leaving significant growth capital off the table, maintaining the lowest retail investor engagement rate in the G7. From 1963 to 2022, retail participation plummeted from 5 per cent to 10.8 per cent and the proportion of UK households directly owning stocks has halved since 2003, according to the Office for National Statistics.

The government has shown that it’s keen to reignite the UK stock market and economy by encouraging retail investors’ involvement. However, it has left clear barriers standing that discourage people from engaging with equity markets.

The way investment is taxed is key to this. The persistent stamp duty on share trading, also known as the share tax, obliges investors to pay a duty on UK share transactions. This forms a significant hurdle for retail investors, with 86 per cent of retail investors Tradu surveyed citing it as a barrier for investing in UK stocks, and 88 per cent stating they would increase investment in UK stocks if it were abolished.

As such, I call for the government to consider abolishing it in the next Autumn Budget to help deliver on their target of boosting economic growth.

Falling behind the pack

The declining interest in UK equities, fuelled by a combination of sluggish economic growth and dampened investor confidence, is making UK markets appear less attractive compared to their international counterparts. The Investment Association reported that £24.3 bn was taken out of the UK stock market in 2023 alone.

On the other side of the pond, US stocks, although taking a big hit in the recent market crash, have drastically outperformed UK equities in recent years. Competition is heating up, and investors are increasingly shifting their focus to such high-growth opportunities.

If the UK does not act now to bolster capital inflows into our equity markets, we risk falling further behind global markets, losing out on critical investment, and stifling economic potential for years to come. The Autumn Budget is an opportunity to reset fiscal policy and encourage greater participation in our stock market.

Turning the tide on the investment slowdown

The UK has a unique opportunity to shift the narrative around its equity markets. Downturns often present the greatest opportunities when it comes to the stock market, and the UK market has been in a prolonged dip that value investors may now find hard to ignore.

Currently, the UK market trades at a notable discount compared to its international peers, particularly the US, making it an attractive prospect for those seeking undervalued assets.

Sectors such as housing and consumer discretionary are well-positioned to benefit from recent economic changes, offering the potential for strong returns as conditions improve.

Efforts to streamline regulations, make listings easier, and create a more business-friendly environment signal positive momentum. These initiatives aim to foster growth and competitiveness, paving the way for renewed interest in UK equities.

Early signs of a turnaround are emerging. The FTSE 100 is currently up over 11 per cent year-to-date, indicating that confidence and growth may slowly be returning.

The government must take advantage of these gains to keep up the momentum. Retail investors are

naturally drawn to markets with lower costs, such as the US. However, the UK’s stamp duty on share trading is effectively a cost on investing that renders UK markets less competitive on the domestic and international stage, with 54 per cent of investors surveyed by Tradu believing US stocks are more attractive than the UK due to lower tax obligations.

Eliminating stamp duty would not only reduce friction for investors but also enhance the attractiveness of UK equities, further contributing to the transformation of the UK’s economic slowdown into positive momentum.

Reviving retail investor engagement

Retail investor participation is a vital source of capital for UK businesses. Yet, today, low engagement poses a serious threat to the UK economy. As we approach the Autumn Budget, the government must take action to remove these barriers to retail investment for the good of the economy and public financial health.

The benefits are far-reaching. A more active retail investor base would not only strengthen the UK’s equity culture but also support long-term personal wealth creation. If UK retail investors adopted behaviours similar to those in Sweden or Australia, we could unlock up to £740bn in capital that can be used to fuel the economy and attract international investment in British companies, driving further job creation and innovation.

Abolishing stamp duty on shares is a necessary first step in achieving this. If the UK is serious about making UK equities more attractive on the global stage and unlocking its full economic potential, the share tax must go.

This piece was written by Brendan Callan, CEO of Tradu.