The United Kingdom faces three interconnected challenges that threaten the country's economic growth. They include a decline in stock market listings, a demographic crisis, and diminishing tax revenue with an exodus of high earners.

The London Stock Exchange (LSE), once a cornerstone of global finance, has experienced a significant increase in delistings since the 2008 financial crisis. In 2024, the LSE had 88 companies delist or relocate to foreign markets, the largest outflow in over a decade.

High-profile companies, such as Flutter Entertainment (FLUT) and Just Eat (JTKWY), have joined the exodus. They cited undervaluation and a lack of liquidity as their reasons for leaving.

LSE-listed companies, 2015-2024, Source: Raconteur

"Ongoing geopolitical instability, slow economic growth, and a diminished appetite for domestic equities among pension funds have impacted valuations and liquidity," Scott McCubbin, EY's IPO lead for the UK and Ireland, said. 

UK Faces Challenge from Lack of New Listings 

A lack of new listings has compounded the LSE's struggles. There were only 18 initial public offerings (IPOs) in 2024, the lowest number since EY began tracking the data in 2010. 

Private equity takeovers and the pursuit of higher valuations in foreign markets with friendlier tax treatments have not helped either. The US, in particular, offers more attractive conditions, such as no stamp duty on share sales, contrasting to the UK's 0.5% tax. 

It is "not rational" to float on the LSE, according to Nikolay Storonsky, CEO of UK banking startup Revolut. In total, last year's IPO raised £777.7 million, marking an 18.3% year-on-year decrease from 2023 – well above the average global decline of 10%.

Number of IPOs on LSE as of April 2024, source: Statistica

Aspen Insurance, for example, chose to list on the New York Stock Exchange instead of the LSE, mainly because of higher valuations and less rigid listing requirements in the US. The listing is expected to be worth approximately £3 billion.

Demographics Is Another Challenge UK Faces

Demographic challenges are contributing to the long-term challenges the UK faces. The fertility rate in England and Wales has fallen to a record low of 1.44 children per woman. 

This is well below the replacement level of 2.1 needed to maintain population stability without immigration. The average age of first-time mothers is at an all-time high, and the number of children born has declined for a decade.

Migration has historically played a critical role in offsetting these demographic pressures. However, its future as a reliable source of population growth is increasingly uncertain, particularly amid tightening immigration policies and the political polarization surrounding the issue.

A shrinking workforce reduces the UK’s capacity for sustained economic growth. At the same time, an older population drives higher dependency ratios. This necessitates greater government expenditure when fiscal resources are under severe strain.

UK Confronts Rapidly Aging Population Problem

Meanwhile, the UK's population has aged rapidly. In 2022, 12.7 million people were aged 65 or over, making up 19% of the population. By 2072, this figure will rise to 22.1 million, or 27% of the population.

The UK's population growth has been sustained largely by net migration. The Office for National Statistics (ONS) said it expects the UK to add 500,000 to 600,000 people annually until 2026. 

However, natural population change—births minus deaths—is projected to turn negative by the mid-2030s. Migration will likely be the sole driver of population growth.

UK's population pyramid, Source: Office for National Statistics 

This demographic shift will drastically change the economy, as an aging population typically requires more healthcare and social services while contributing less to the workforce and spending less. The aging population also reduces innovation, adding to the UK's inability to attract tech and high-growth companies.

Furthermore, the demographic shift and reliance on immigration has already changed society. Researchers like Matthew Goodwin and Robert Putnam warn that these trends "push people to ';hunker down,' turning away from their neighbors who, to be blunt, they don't know anymore."

High-Income Earners Flee United Kingdom

The UK's tax revenue base is threatened by high earners. The top 1% of taxpayers, contributing 29% of income tax revenue, are leaving the country in droves. 

In 2024, the UK lost 10,800 millionaires to overseas destinations, more than double the number who left in 2023. This was largely driven by the Labour Party's new tax policies, including changes to the non-domiciled tax status.

Under the new rules set to take effect in April 2025, individuals who live in the UK but are domiciled elsewhere for tax purposes will have only four years of tax-free status on foreign wealth. That period is down from the previous indefinite exemption. 

Existing non-doms have been given two years to transition to the new regime. The changes prompted many high earners to relocate to countries with favorable tax environments, such as Italy, Dubai, and Singapore.

Millionaire migration by country, Source: Adam Smith Institute

UK Millionaires Exodus Leads to Revenue Loss 

Each millionaire who leaves represents a significant loss to the Treasury. They pay an average of £393,957 in income tax annually—equivalent to the contributions of 49 average taxpayers.

"Our findings underline the urgent need to attract more millionaires to the UK," Maxwell Marlow, director of research at the Adam Smith Institute, said. 

Thus, the departure of 10,800 millionaires could create a loss equivalent to losing over half a million average taxpayers.

"Without highly taxed millionaires, the Treasury faces a catastrophic hole in its budget, and everyone else faces higher taxes and poorer public services," warned Andrew Griffith, the shadow business secretary.

UK Confronts Perfect Storm

The three challenges the UK faces have underscored the interconnectedness of the economic systems. 

The decline in IPO activity and the increase in delistings at LSE limits the country's ability to attract and retain businesses, undermining job creation and driving tighter fiscal policy—which acts as a self-reinforcing cycle.

Without innovation and sustainable demographics, the population grows older. The demographic shift increases the demand for public services while reducing the size of the workforce, further straining the tax base. The exodus of high earners threatens to erode the tax revenue needed to fund those services.

"The UK is, in part due to the nature of our geography, but also because of the nature of our open economy, at the mercy of what happens around the world as well," Tom Becket, co-CEO of Canaccord Genuity Wealth Management, said. 

"Our view for 2025 is that growth isn't going to be great, but it's not going to be disastrous either. The US will probably be quite strong. Europe will continue stagnating," he noted.

Disclaimer:

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