In line with global trends, the structure of the UK capital markets is changing, while around 17,000 local companies strive to access the capital they lack to scale up operations.
Fresh research by UK Finance, a trade association representing the banking and financial services sector in the UK, revealed that the local government, regulators, and industry must collaborate more actively to open up public and private capital markets. This would enable early-stage businesses to secure funding, expand both domestically and internationally, and ultimately boost national economic growth.
The report, titled ‘A Unified Strategy for Growth and Prosperity’, is supported by EY. It is based on extensive industry data analysis. It also includes insights from interviewing over 30 representatives of UK businesses, investors, advisers, and market participants.
The research sheds light on the evolving nature of the national capital markets, which play an essential role in the development of the UK economy.
To begin with, public markets are still a key source of funding for British startups. However, fewer companies are choosing to list in the UK, and more are leaving the market. Many businesses are staying private for longer, and the decision to go public is now more complex.
This may happen for several reasons. For once, companies face high costs and strict rules when they go public, so many businesses want to avoid complexities. They also prefer the flexibility of private funding. More options in private markets make it easier to raise money without the pressures of public scrutiny.
Therefore, private capital markets in the UK are expanding rapidly, now providing £1.2 trillion in funding to local companies. Since 2013, venture capital has grown by 20% per year, private equity by 11%, and private credit by 43%.
This steady growth in venture capital and private equity has helped expand UK capital markets. In 2024, these sources made up 15% of newly issued capital, compared to just 5% in 2013. Nevertheless, while public markets as they are today account for a smaller share of total funding, they have still grown by 4% per year since 2013.
In recent years, the share of investments in technology, media, telecoms, health and social wellness sectors has grown significantly. Particular investor interest is driven by the development of AI in these spheres. At the same time, the report finds that around 17,000 further businesses in the UK need more capital to fuel their growth and competitiveness on a larger scale.
To keep the UK’s position as a top financial centre in place, the research suggests several steps for the government, regulators, and industry to make.
- Establish closer links between public and private markets, unlocking new opportunities to support company growth and liquidity. This includes using private growth funds, crossover funds, and a new proposed trading platform called Private Intermittent Securities and Capital Exchange System (PISCES). The latter will enable local businesses to sell shares without needing a full public listing, try out market trading in a controlled environment, and reach a wider pool of investors, including institutional and retail investors, who may not typically have access to private company shares. These ideas aim to help companies move to public listings more smoothly.
- Reform key regulations, making sure that the Industrial Strategy works well with other government plans, like modernising capital markets and the Pension Investment Review.
- Remove the 0.5% stamp duty on UK equity. Also, bring back the dividend tax credit for pension funds, which was removed in 1997.
- Strengthen the Enterprise Investment Scheme (EIS) and the Seed Enterprise Investment Scheme (SEIS). Ensure these schemes last beyond 2035 and review their funding limits. Expand support for companies spun out from university research.
- Create regional hubs to help start-up CEOs with investor negotiations, commercialisation, and UK tax incentives.
Conor Lawlor, Managing Director of Global Banking, Markets and International Affairs, emphasised the vital role of capital markets in driving growth and financial security. He highlighted the UK’s strong public and private market ecosystem and the need to strengthen their connection. Lawlor also stated that businesses could scale by fully leveraging private markets and urged immediate action to build stronger capital markets.
Axe Ali, EMEIA Financial Services Head of Private Equity & Venture Capital at EY, also highlighted the UK’s strong history of innovation and its appeal for business growth. He noted that while public financing is shrinking, private markets are expanding. Ali stressed that better collaboration between the two could address funding gaps and support both businesses and the wider economy.
