Reeves opens up UK corporate bonds to small investors in push for savings
Rachel Reeves is opening up the British corporate bond market to small investors as part of a wider campaign to move more domestic savings to UK businesses and revitalize London’s capital markets.
The chancellor on Monday will launch a government-backed scheme designed to make corporate bonds accessible to retail investors for the first time in years, removing barriers that have kept the market confined to institutions and wealthy individuals. Under the new rules, individuals will be able to invest in corporate bonds from as little as £1, compared to the previous £100,000 minimum that has become the norm after EU-era rules.
Speaking at an event organized by the London Stock Exchange, Reeves is expected to herald the start of what he calls a “new golden age” for the City, putting the changes at the heart of Labour’s desire to boost investment and economic growth.
The core of the program is the new kitemark program aimed at strengthening budding investors. The London Stock Exchange will introduce so-called “Access Bonds”, a designation that allows eligible corporate bonds to be clearly identified on retail investment platforms. Along with this, the Financial Conduct Authority will oversee a strict classification known as Plain Vanilla Listed Bonds, or PVLBs, which are reserved for specific bond structures with standard terms.
Ministers hope the changes will revive direct retail participation in the goods sector which has almost disappeared in the UK. Although British savers can easily buy government debt, direct ownership of corporate bonds is negligible, in stark contrast to the United States, where households own more than six billion dollars in debt securities.
Officials say corporate bonds should appeal to cautious investors looking for potential income. Blue-chip issuers typically offer yields at least a percentage point higher than government bonds, with fixed repayment terms over a period of two, five or ten years. While bond prices can fluctuate based on interest rates and inflation, default risk among large, established companies appears to be relatively low.
Banks, energy groups and supermarkets including Lloyds, HSBC, BP, Shell, Tesco and BT are common bond issuers, and many of their future offerings are expected to qualify for the new ready-to-sell labels. Barclays estimates that around 13 million people in the UK currently hold £430 billion in savings that could, in fact, be eligible for investment in corporate bonds.
The changes are also part of a wider overhaul of prospectus rules aimed at making it easier and cheaper for companies to raise capital in London. The standard of issuing a full prospectus has been greatly increased, especially in the case of secondary shares and investment trusts, to reduce regulatory conflicts and to accelerate capital raising. The mandatory waiting period for IPO prospectuses has also been cut in half.
Industry figures say this package is long overdue. RetailBook’s James Deal, who has long campaigned for greater retail participation in supermarkets, described the changes as a major step forward, coming six years after they were first recommended in a review led by former EU commissioner Jonathan Hill.
Some sales forums have privately expressed concern that new labels and acronyms could add complexity to an already heavy market. However, the exchange is moving forward with a public education campaign under the banner “Bond With Britain”, which aims to improve understanding of how bonds work and the risks involved.
Reeves is expected to tell the audience that London’s financial sector is showing renewed strength, pointing to record highs in the FTSE 100 and growing international interest in UK listings. “Two years ago, some said the best days of the City were after that,” he will say. “They were wrong.”
