Reform of financial markets is vital if the UK is to become a high-investment, high-productivity, high-wage economy, a report from a think tank has suggested.
Despite being a big employer, the financial sector is "not sufficiently supporting" long-term investment in the UK domestic economy, with small firms "frequently unable" to access necessary bank lending, the discussion paper from the IPPR (Institute for Public Policy Research) Commission on Economic Justice said.
The report entitled Financing Investment: Reforming Finance Markets For The Long-Term argued reforms of the UK's financial sector should be focused on "improving the flow of capital to the businesses most in need of investment".
It said: "The profitability of the UK's finance sector rests in part on a failure to pass on the benefits of its rising productivity to the rest of the domestic economy ... The UK has a lower rate of investment than our major competitors."
Raising SME investment required "shifting the focus of bank lending to small, high-growth firms and the development of new specialist banks".
It added: "The Government should capitalise new specialist banks to provide lending to key sectors and regions."
The report concluded that p romoting longer-term corporate investment required a "stronger alignment of the incentives of companies with the savers who ultimately own their shares".
It urged the G overnment to scrap the "market maker" relief on stamp duty reserve tax - a stamp duty of 0.5% on the purchase of company shares - as a first step towards a " Robin Hood" tax.
The move would reduce short-term speculative trading and raise at least £1.2 billion per year by the 2020s, the report said.
It said: "Hedge funds and other market makers should no longer be exempted from stamp duty reserve tax, in order to reduce the incentives for short-term trading. The revenues generated could be used to create new reliefs in corporation tax and capital gains tax to increase incentives for longer-term ownership of shares."
Alfie Stirling, IPPR senior economic analyst, said: "A lack of investment in the UK is costing savers, who would otherwise be getting a better return on their investment; employers, who are missing out on higher profits; and workers, who are enduring the worst decade of pay growth in more than a century.
"Reforming financial markets is key to upgrading the UK to a high-investment, high-productivity, high-paying economy. This includes hard wiring new incentives in stock markets through tax and legal reform so that they are better aligned with the rest of the economy"