There are two ways to run a stock market. The first is to do little more than provide a platform for buyers and sellers to meet. In this lightly policed model, anyone can play. Buyers must look after their own interests and no one can complain too much if the stocks turn out to be duds. The second approach is more demanding. Companies wishing to join such a market must commit to high standards of governance and grant their shareholders strong ownership rights that are enforceable. Investment accidents can still happen, but outright abuses should be rarer.

The London stock market was, we assumed, firmly in the second camp. In days of old, the City may not have been overly fussy about shareholder rights. But in the second decade of the 21st century – and especially after a dangerous experiment from 2010 in attracting Russian companies – the debate had surely been settled in favour of high standards. After all, a reputation for trust benefits everyone. It attracts long-term investors with big pools of permanent capital and allows companies to enjoy lower funding costs.

Now, for the first time in years, it is fair to ask: which side is London really on? And there is an uglier secondary question: are our politicians leaning on the regulators?

By proposing bending the London listing rules to attract Aramco, Saudi Arabia’s state-owned oil company, the Financial Conduct Authority has sown the seed of distrust and provoked fury among fund managers.

The rule change can be dressed up as minor. The FCA is merely proposing to create a special listing category for companies controlled by sovereign states. That, in itself, is not controversial: companies in the process of privatisation can indeed be viewed as of a special type.

The problem is that the FCA wants to allow such companies into its “premium” listing category while waiving two essential requirements of that description. The state-controlled companies won’t have to give outside shareholders a vote on the appointment of directors who will represent their interests on the board. And worse, the likes of Aramco will be able to ignore rules on related-party transactions that other “premium” companies must obey. In theory, Aramco, which is looking to list only 5% of its shares, could sell 20% of its assets to the Saudi state and inform outside investors only at a later date.

Whatever gloss one applies, calling such companies “premium” is absurd. The label is meant to denote the highest standards of investor protection. The Investment Association, which represents most of the big fund management houses, hit the nail on the head: “Investors believe a premium-listed segment without these protections is not a premium segment.”

The FCA argues that “investors and the market are sufficiently able to assess the additional risks arising from sovereign ownership”. That may be true, but, for heaven’s sake, don’t gloss over those risks by awarding top marks to companies that don’t deserve them. The Saudi royal family may want their $2 trillion oil company to have “premium” status, but, if the facts don’t fit, that should be the end of the matter.

Andrew Bailey, chief executive of the FCA, had been considered the smart-money bet for next governor of the Bank of England. In only a year, he has given the organisation a much-needed air of competence. This Aramco decision, however, looks like a desperate attempt to please political masters who crave a post-Brexit endorsement of the City’s pulling power.

Bailey and the FCA should have displayed their independence and declared that the likes of Aramco should make do with a “standard” listing. It would also have been acceptable to create a purely “sovereign” label and keep Aramco well away from the “premium” club. Instead, the FCA has exposed the London market to the allegation that a whiff of foreign money can produce favourable rulings. The City will pay a price in the end, and Bailey already looks a smaller figure.

Has anyone mentioned the S-word?



The dreaded word stagflation cannot be yet be applied to the British economy, but it may not be long before it is. Inflation remains persistently high while GDP growth is slowing to a point well below the long-run trend. Wages are growing at a sluggish pace and business investment has almost evaporated. To make matters worse, the fall in the pound that has generated much of the increase in prices, particularly for food and clothes, has done little to improve the trade deficit.

It all adds up to the average British worker putting in a 40-hour week for a salary that will be worth – once prices are taken into account – less than it was the month before. No wonder discount supermarkets Aldi and Lidl are cleaning up. Shoppers are sure to seek a cheaper alternative when the pressure is on.

Inflation figures due on Tuesday are not expected to alter this dire situation. In May the consumer prices index stood at 2.9% and the Reuters poll of City economists resulted in a forecast for June of 2.9%. Plenty of predictions indicate that inflation is only going to get higher as the year wears on.

With wage rises averaging 2% in May and likely to stick at this rate throughout 2017, the hit to household disposable incomes is significant. Even more so for those in the public sector, where a 1% pay freeze is in operation.

The first thing economists are going to ask is whether the figures will shift opinion on the Bank of England’s monetary policy committee towards an interest rate rise.

Three committee members voted last month for an increase, but one of those has since left and new joiners are not known for voting against the consensus in their first few meetings. That means governor Mark Carney will say the inflation numbers are not bad enough to spur him and the rest of the committee into action, and most of his colleagues will nod in agreement.

Their fear must be that stagflation is around the corner, and with Brexit looming, it is only getting nearer.

Revenue chase puts Carillion up against the wall

How can Carillion, a company with 48,000 employees and a £5bn turnover, be exposed as a financial mess in one stock exchange statement – such as the one that sent its shares crashing 70% last week?

A clue can be found in March’s annual report, where chairman Philip Green wrote: “The group has once again delivered strong revenue growth.”

If that sounds benign, it shouldn’t. A construction company that prides itself on growing revenues is dangerous. If it wins contracts by accepting too many risks, disaster often follows. Carillion was floored by just four contracts that went awry. The provision for write-downs is a colossal £845m.

The other part of the story is Carillion’s heavy borrowings. It is towing £695m plus a big deficit in its pension fund. But the point remains: in the construction business, risk-controls – not revenues – are everything. A chairman who told investors about contracts that were refused would be worth listening to.