The Blair decade – booming markets driven by global forces

As Tony Blair prepares to hand over the keys to 10 Downing Street next week, Jeremy Tigue, manager of the legendary Foreign & Colonial Investment Trust, compares the key themes that dominated markets under his decade in office with those of Britain's other recent long-serving Prime Minister, the Iron Lady.

"Shareholders in Foreign & Colonial Investment Trust have undoubtedly prospered under Mr. Blair's period of office, seeing a return of 138%," said Tigue, "but the prevailing theme is that the drivers of returns have overwhelmingly been global developments – the rise of new industries, deflation, a world awash with liquidity and the boom in alternative investments - rather than domestic policy."

"This is not to say that there weren't important financial developments under Mr. Blair. Far from it, the decision at the outset of his Government to give the Bank of England independence to set interest rates was an enlightened one that has given the economy more flexibility and instilled more confidence in investors. Likewise, the development of AIM with attractive tax perks and, ironically given the current controversy over the earnings of private equity professionals, the introduction of accelerated tapering relief on private companies also provided a fillip to investment markets," said Tigue.

"But in the round, markets over the last decade have risen above the influence of domestic Government which is an achievement rather than a criticism."

In contrast, Tigue argues that Margaret Thatcher's time as prime minister between 1979 and 1990 can be heralded as the most innovative period in the UK investment market's history. It was also a period when Foreign & Colonial Investment Trust shareholders were even more richly rewarded, with the stock rising some 637%.

"The changes bought in by Thatcher's government shaped the UK investment market to make it the success it is today.

"Perhaps the most significant of these was privatisation which started with British Telecom in 1984 and extended to many other companies including British Airways, BAA and British Gas to name a few. This move was completely unexpected but served to force companies to become more efficient. It was also accompanied by a massive marketing drive to encourage the UK public to invest in stocks and shares, with innovative techniques used to draw in the uninitiated such as partly paid shares, which enabled investors to pay for their shares in instalments but still benefit from 100% of the upside. Many people for whom share buying had been an alien concept, suddenly piled into these companies and within a matter of a few months the number of UK shareholders tripled driving up the stock markets. Investment trust savings schemes were able to take advantage of this new environment and ride the new wave of demand," said Tigue.

Tigue also points to the convergence of the roles of stock brokers, who bought shares from jobbers, and jobbers themselves, who physically traded shares on the trading floor. Commonly referred to as the Big Bang, this bought down the high commission rates which were previously commanded by the two roles and boosted liquidity in markets with more share trading taking place.

"By doing away with the old culture, the markets became much more efficient. It also marked the start of a new yuppy culture which saw younger people advancing up the promotions ladder more quickly as the older generation took early retirement. Another significant change which took place but is not oft-talked about was the abolition of currency exchange controls, which freed up a large proportion of the international market for UK investors. Yet perversely, those who remained in the UK have actually been better off, as the UK stock market took off making it one of the best performers in the world between 1979 and the present day," added Tigue.

"The Thatcher years laid the key foundations for the Blair years, opening up the UK and reducing the influence of Government in matters best left to markets. Mr. Brown, in turn, inherits a rich legacy with London regarded as the world's premier global financial centre and a sourced of enormous wealth creation. As he mulls the populist demands to clamp down on the wealth inequalities that inevitably have followed this, he should not forgot the risks that could accompany hasty interventionism."