The UK’s equity market has become a relative backwater, with a dearth of new issues and the number of listed companies declining steeply.

According to John Kay, the economist and Financial Times columnist who has just completed a review of equity investment on behalf of the government, the problem goes beyond a cyclical decline in investors’ appetite for shares. A lack of trust in financial intermediation is eroding both supply and demand for public equity, he argues. Unchecked, this could weaken the effectiveness of UK equity markets as a mechanism for mobilising the nation’s savings.

The proposition that the financial sector has a problem with trust is hard to argue with in the wake of the Libor scandal. It is also hard to dispute much of Prof Kay’s analysis. The general trend over the past 30 years towards the creation of financial conglomerates – carrying on trading and giving investment advice – has been a mixed blessing for investors, giving rise to conflicts of interest that regulators have failed to manage.