Conservative Economic Policies 2010-20: The FTSE 100’s Judgement

The FTSE 100 index lists Britain’s largest companies by capitalisation, it’s dynamic reflecting the state and shape of the economy. Some sectors are over represented but the FTSE is what it is.* The FTSE reflects creative destruction with the old replaced by the new on a three monthly basis. Pro-business governments fine tune the regulatory framework and tax regime to help innovation. Conservative politicians claim they do indeed assist business in this way. Between 2010 and October, 2020, the time of writing, the FTSE’s catastrophic stagnation has been, in part, caused by successive Conservative chancellors not doing anything for British business.

The ten year FTSE graph shows the economy is stagnant. The Covid-19 pandemic has been catastrophic for the FTSE 100

The so-called business friendly Conservative governments of 2010-20 utterly failed. Neither graph corrects the figures for inflation. If inflation is included in, disaster is highlighted. A £100 in 2010 would, by 2019 (latest figures available), have increased to £129.19 assuming co-equality with inflation. If the FTSE index had only increased by inflation in 2019 it would have stood at 7492. In October 2020 it was 5800.

The FTSE is about 30% below the 2010 index figure after ten years of Conservative governments when corrected for inflation.

The comparison with the USA is stark. This is the Dow Jones for the same period. Covid-19 is merely a blip for the Dow Jones

The NASDAQ index in the USA is dominated by high tech companies and isn’t comparable to the FTSE but the key question is why not? the NASDAQ index shows the UK in an even worse light. The bounce back from Covid-19 has been dramatic and the index is up about six fold in the same period that the FTSE lost 30%.

High tech is the quintessence of innovation, which means Britain is apparently incapable of competing in this 21st century business arena. But we are capable. The problem is British short-termism and obsession with dividends. Britain is a rentier society living off capital as opposed to constant reinvestment. British high tech companies are quickly sold off to international rivals.** Conservative businessmen sell the family silver and constantly reduce Britain’s economic status in the world.

The four largest companies in the world have dividends ranging from 0% to 1.4%. The FTSE yield, is 4.3%. (October 2020). Nothing tells the story better than this simple metric. The British invest in what they regard as safety first. They are opposed to investing in innovative companies. A good example is the £83bn ‘invested’ in the government’s lottery, Premium Bonds. A lottery! If Premium Bonds were a FTSE company they’d be the fifth largest by capitalisation.

The Age of Austerity has imposed a savage cost on Britain. Staggering out of the bankers’ recession of 2008-9, the economy needed to be nurtured back into shape. What it got was a brutal unnecessary attack. The FTSE has spoken. The Conservative governments of 2010-20 failed utterly.

Notes

* For a discussion see

https://www.schroders.com/en/uk/private-investor/insights/markets/how-the-ftse-100-has-changed-over-33-years/

For the outcome in the year to date (October 2020) see https://tradingeconomics.com/united-kingdom/stock-market

** The most egregious example was the sale of ARM to Softbank for $32bn it has now been sold on to an American company for $40bn. A 25% profit in four years. https://uk.finance.yahoo.com/news/softbank-group-selling-arm-nvidia-013755907.html

Sources

For the sources for each one of the graphs see, in use order,

FTSE 10 year chart

https://www.hl.co.uk/shares/stock-market-summary/ftse-100/performance

Dow Jones 10 year chart

https://www.macrotrends.net/1358/dow-jones-industrial-average-last-10-years

NASDAQ 10 year chart

https://www.5yearcharts.com/wp-content/uploads/2017/04/nasdaq-10y

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