The post-Brexit EU ban spurs the London Stock Exchange to take on Wall Street – but can liberalisation by itself do the trick?
As there was no agreement in sight before the 31 March deadline for the UK’s access to the EU’s financial sector on the basis of the equivalence of the two regulatory frameworks, the exodus of EU-based companies listed on the London Stock Exchange has come about as anticipated.
Any UK financial provider intending to sell its products in the EU now has to register an operation in the bloc to do so, and vice versa. In a similar vein, the EU’s share trading obligations mean that post-Brexit, its stocks need to be traded from EU-based venues. As a result, by January Amsterdam had surpassed London’s as Europe’s top trading centre, with an average of £8.4 billion of shares traded a day after £6.5 billion of deals shifted from London.
January and February saw London-based electric vehicle maker Arrival and UK betting firm Genius Sports Group Ltd going public on the New York Stock Exchange rather than in their domestic market. But, from a global perspective, IPOs haven’t really been London’s thing anyway, with the City accounting for only 5 per cent of IPOs completed around the world in the past five years.
The magic powers of the Lord Hill Review
The turning point was the publication of the review launched in November by Rishi Sunak to identify techniques to not just restore the LSE’s pre-Brexit power, but also offer an attractive alternative to companies deliberating an IPO in New York.
Jonathan Hill, Britain’s former EU commissioner, who led the review on the UK’s listing regime, made two main recommendations. One was about allowing the dual share structures on the LSE’s premium FTSE 100 and 250 segment, which breaks with the one share, one vote principle to allow founders to initially retain more control over their company by allocating shares to them that carry more than one vote.
The other aims at reducing the free float requirement – the proportion of shares publicly traded – for an IPO from 25 to 15 per cent. All changes recommended are along the lines of making the floating process better value and less bureaucratic.
Admittedly, Lord Hill is no cheerleader for special-purpose acquisition companies (SPACs) or outfits that have no commercial operations but are set up for the sole purpose of turning a private company public by acquiring it – a practice that caught on in the US during the pandemic. However, out of expediency rather than conviction, he has been suggesting that this fast track to listing should be endorsed in the UK if London is to attract more high-growth tech firms.
LSE darlings
Indeed, the two UK-based companies mentioned above, which voted for the New York Stock Exchange with their feet, both went public via a SPAC-merger. And to prove Lord Hill right, the promise of London running a menu of more choice and better value for listings – along with some wooing from the Prime Minister himself – was enough to convince cyber-security firm Darktrace and remittance fintech Wise (formerly Transferwise) to opt for the UK capital rather than New York or Amsterdam.
Wise, flush with capital, went public via direct listing, a method that has generated a lot of debate about transparency and accountability even on the other side of the pond, as it is a scheme where shares are sold that directly exclude underwriters. Although enticing Wise to London sounds like an achievement, an opinion piece in the Financial Times labelled direct listing as “not an innovation but an invasive species”, implying that its introduction in Britain is not welcomed by all.
A report by the University of Edinburgh from October 2020 on the dominance of private over public equity also suggests that educating investors to bring about a change in prevailing attitudes would be also key to increasing the number of IPOs, as well as the amount of available private equity in the UK. They should become more appreciative of the value of companies whose assets are dominated by intangibles and those which, unprofitable though they might be, have some proven revolutionary technology or business model behind them.
Liberalisation won’t by itself lead straight to a spike in IPOs, the report also maintains. The FTSE 100 is still dominated by low-growth, mature corporations, and London lacks the legions of analysts, investors and advisers that concentrate around the NYSE. But taking the first steps to attract prestigious tech companies to the UK capital may cut across the chicken-or-egg dilemma, and the increasing gravity of a growing tech hub will be enough to attract expert personnel and further capital.
Zita Goldman
Zita Goldman covers digital transformation with a focus on demystifying digital technologies and showing how they fit into a broader sectoral, macroeconomic, legislative and societal context. She has a passion for connecting the dots of current business and financial news and explaining inconsistencies, for giving hype a reality check and looking behind buzzwords for fresh meaning.
Rail reform: why Britain’s railways are getting a full makeover
To say the UK has long had a rail problem is an understatement. Chaos has become the descriptor of choice for train services, variously characterised by exorbitant fares, delays blamed on every kind of wrong weather and severe overcrowding.
The government’s recent rail review, therefore, is a big deal. More than the mere improvements the Department of Transport’s McNulty review recommended a decade ago, this reform represents a complete overhaul.
There have long been calls for a modernised fleet to help Britain’s railways cope with – and respond to – the climate crisis. Covid, meanwhile, has intesified the need for a system that serves changing customer needs and working practices. The question of course is whether these plans will make UK train travel better and cheaper.
Complete overhaul
At the heart of the reform is the creation of Great British Railways. This new publicly owned body will subsume Network Rail in managing the national rail infrastructure. It will manage all other aspects of train travel too – from ticketing to timetabling.
The government insists this is not renationalisation. Great British Railways will serve instead as coordinator, issuing management concession contracts to private train operators, with incentives to improve punctuality and increase passenger numbers.
Transport secretary Grant Shapps has said this will put an end “to years of fragmentation, confusion and over-complication”. British Railways, under state ownership since the late 1940s, was privatised in 1994. A franchise system was devised, whereby private train operating companies could compete for the right to run train services on the various lines of the network. The infrastructure was auctioned off too, first to privately-owned Railtrack and then to publicly-controlled non-profit Network Rail.
The idea was that greater competition would result in greater efficiency, lower fares for customers, higher profits for operators, and fewer government subsidies. However, many of the rail companies made increasingly untenable losses. Having little control over the socio-economic factors (employment levels, economic growth) that determined how often people took the train, profit margins were low and the competition anaemic.
This saw the East Coast rail service temporarily renationalised in 2018 after the operators, Virgin and Stagecoach, failed to deliver on revenues promised to the taxpayer. Arriva’s contract to run the Northern rail franchise was similarly ended, and the line renationalised, in 2020.
Concession system
Fixing UK rail – and all its technical problems – has always been a tricky proposition. There are too many stakeholders and yet no central coordinator to hold everyone to account. Great British Railways has been conceived of to do just that.
The government wants to enable the rail network to be more dynamic, and responsive to change. In replacing the franchises with concessions, it wants to alleviate the operators’ burden of financial risk related to uncertain revenues. Instead, they will simply be paid to run the services, much like Transport for London’s successful London Overground concession is currently run by Arriva.
To simplify passengers’ lives, Great British Railways will also emulate Transport for London’s contactless, pay-as-you-go scheme rather than only accepting paper tickets. Additional services that do not require advance booking will be made available for vulnerable customers such as elderly, blind or partially sighted passengers.
For those passengers wishing to travel a few times a week, there will be flexible season tickets. And new train interiors will cater more to comfort and flexible working than to greater capacity.
The reform looks at new technologies that will allow train operators to make better use of data on everything from average punctuality rates and expected service crowding to land conditions, and adapt accordingly.
And it aims to cut transport emissions through further electrification of the rail network and alternative technologies such as hydrogen and battery power. Green initiatives focused on energy efficiency, renewable power generation, and vegetation and wildlife management (which includes tree-planting) will also be accelerated.
What the plan omits
For rail reform to be successful, however, two things must be addressed. The first is the cost to the customer. Results from the National Rail Passenger Survey in spring 2020 showed that, on some routes, as few as 26 per cent of customers were satisfied with the value for money of their train travel.
The government is promising affordable fares. Affordability, though, is subjective. Survey findings have clearly identified that cheaper fares would draw in those people who rarely, if ever, currently use trains because of the cost.
The second key issue is how UK transport systems are financed. We need a holistic approach. The Treasury’s plan to charge British motorists for using the nation’s roads is a welcome step towards addressing the imbalance between the cost to the user of rail versus car.
Some observers go further in arguing for a comprehensive charging system for private vehicle usage, according to distance driven, emissions and congestion. An important caveat though is how this could adversely affect lower income households, for whom driving is often the only option.
Although rail is widely regarded as more sustainable, the car remains the dominant mode of transport in the UK. The Covid-19 crisis has hit public transport hard, and exacerbated those numbers.
Transport accounts for 28 per cent of the UK’s domestic greenhouse gas emissions. As part of its commitment to net zero emissions by 2050, the government’s rail review builds on recent plans to improve buses and encourage cycling and walking. If a balance is struck between efficiency and fairness, this reform could mark a shift from car to rail.
Chia-Lin Chen, Lecturer in Urban and Regional Planning, University of Liverpool
This article is republished from The Conversation under a Creative Commons license. Read the original article.
How sewage plants and data centres could help heat one in five UK homes
Gas boilers heat around 85 per cent of homes in the UK, but their installation in new homes is to be banned from 2025. While heating produces over a third of the country’s CO₂ emissions, there are only two low-carbon heating alternatives that most people hear about: heat pumps and hydrogen boilers.
Heat pumps are like a refrigerator working backwards: they use electricity to run a compressor, which transfers heat from the outside to the inside. Hydrogen boilers are just another sort of gas boiler, designed to burn hydrogen instead of the fossil fuel natural gas.
Yet there is a third option we don’t hear much about which has been around for centuries which experts believe could heat around 18 per cent of UK homes by 2050. District heating, as it’s known, could be keeping you warm in the near future by recycling heat from sewer drains, abandoned coal mines or even the London Underground.
How it works
District heating systems pump hot water from a large boiler at a central location, or from a facility with lots of waste heat such as near energy-hungry buildings such as leisure centres a data centre, through a network of insulated pipes and into homes. It could serve a few apartments at one address or thousands of houses and businesses across a whole city. Like the electricity grid, there can be multiple sources supplying the network.
In a district heating system, the radiators and hot water cylinders inside houses are fed by a heat interface unit, which transfers the heat energy from the network. This is about the size of a large gas boiler but doesn’t need a flue so is easy to install on a wall or in a cupboard. You control the heat supply using standard thermostats, paying bills for the heat energy used rather than the amount of gas or electricity.
The origins of district heating can be traced to Roman bath houses, where hot air was circulated under floors. In the 14th century, the French spa town of Chaudes-Aigues had a system for distributing heat to houses from hot water springs.
The first generation of modern district heating systems used steam from coal-fired boilers and were installed in Europe and the US from the mid-1800s. A system in Manhattan has been operating since 1882 and continues to heat more than 1,500 buildings.
The Amager Bakke waste-to-energy plant in Copenhagen, Denmark shows how modern district heating can become a beautiful part of community life. The city’s non-recyclable waste is burned to supply heat (as well as generate electricty) for a network of 150,000 homes. Its striking architectural features are capped with an artificial ski slope on its roof.
In Iceland, 92 per cent of the population lives in homes served by district heating. Three-quarters of this heat comes from abundant underground hot springs. In Denmark and Latvia, district heating supplies 60 per cent of homes on average. Austria has a substantial forestry sector and many villages have district heating systems fed from the local sawmill where waste wood is burned. China has the world’s biggest and fastest growing district heating system, but it’s largely coal-fired.
Only 2 per cent of homes in the UK are currently heated this way, but this is set to change. The government recently announced £44 million (US$62 million) in funding for three district heating schemes in London, Manchester and Cambridgeshire, which would together heat tens of thousands of homes.
The Scottish government plans to give district heating the same legal standard of consumer protection and supply security as electricity and gas. A system is currently being installed at Clydebank near Glasgow in the former John Brown shipyard. It will supply more than a thousand new homes plus community and business facilities by capturing latent heat from the River Clyde.
How heating sources compare
Some argue that the simplest way to decarbonise Britain’s gas heating network is to pump hydrogen instead of natural gas into home central heating systems. While hydrogen fuel will be useful in a low-carbon economy, experts suggest its use should be prioritised in industry and heavy transport, where alternatives are limited.
Installing a heat pump can slash a home’s heating emissions but they will not be suitable for all buildings, such as those in dense urban areas. More carbon is released in the manufacture of heat pumps units than gas boilers, and their refrigerant gases have very high global warming potential.
Net zero emissions homes must reduce energy demand as much as possible. Adequately insulating buildings can almost completely remove the need for space heating, leaving hot water as the main source of home heat demand.
District heating depends on a network being installed to service a whole neighbourhood. But if your living situation matches any of the following descriptions, it could be your best option for low-carbon heating:
- If you live in a dense urban area where space to install appliances such as heat pumps is limited. This is especially the case in historic city centres where policies might limit how much buildings can be altered.
- If you live in a building where utility supplies are linked to its ownership or operation, such as social housing or build-to-rent properties. This provides the economies of scale required for a cost-effective district heating system, with heat supplied as part of the tenancy agreement.
- If you live near energy-hungry buildings such as leisure centres and hospitals. Connecting these to homes in a district heating system helps to balance heat demand throughout the day, allowing it to operate effectively.
- If you live in a home close to a renewable heat source that could supply a district heat network. That could be a dedicated waste-to-energy facility, somewhere that geothermal heat could be tapped such as an old coal mine, or in rural areas where a sustainable supply of timber could be burned in a biomass boiler.
Ran Boydell, Visiting Lecturer in Sustainable Development, Heriot-Watt University
This article is republished from The Conversation under a Creative Commons license. Read the original article.