UK launches mixed message with IPO veto

UK launches mixed message with IPO veto
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You want to be able to block offers that threaten national security, while trying to attract investment

The British Government cannot decide between embracing the free market or putting it on the line. That’s one way to interpret the news that Rishi Sunak is seeking new powers to block stock offerings that threaten national security. The move appears to contradict the effort of the British Chancellor of the Exchequer (finance minister) to attract more companies to London. It also reveals a deeper ideological incoherence in the Conservative Party following Britain’s exit from the European Union.

Sunak’s competing initiatives are a consequence of Brexit. It is true that the government could have rewritten the rules to make London more attractive to supervoted share companies and special purpose acquisition companies (SPACs) when Britain was still in the EU. But the review owes much to Sunak’s eagerness to show that Brexit has benefits for the City.

The controversial veto on IPOs, for its part, stems from the need for the United Kingdom to draw up its own rules on financial sanctions, which until now had been set by the EU. Although the details are vague, the idea is that ministers can block public offerings for sale (IPOs) that they consider a threat to national security, even if they are approved by the Financial Conduct Authority.

It is not yet clear how the London share sale could pose such a threat. However, a 2019 parliamentary report noted that the UK lacked the legal power to stop the 2017 listing of Russia’s En +, even though it used part of the IPO proceeds to pay off a bank loan under sanctions of the European Union. The new powers would allow Britain to simply say no.

Ministers could argue that there is no inconsistency between wanting to attract tech companies to London and rejecting nasty ones. However, there is still a tension between the two. For example, what if one of the SPACs that Sunak wants to attract proposed the acquisition of a company that would pose a national security risk?

The instinct to free and control markets is not limited to IPOs. It is evident in the government of Prime Minister Boris Johnson’s eagerness to attract foreign investment while giving itself the power to block foreign acquisitions; in their desire to reduce international trade barriers while protecting farmers; and in its ambition to attract global talent while curbing immigration. Businesses will have to get used to mixed messages.