Responding to the Government’s ‘Financing a private sector recovery’ Green Paper, the London Stock Exchange outlines how the success of the UK economy will increasingly be built on the performance of high growth SMEs, and makes a number of policy recommendations that will help ensure these companies can efficiently access the capital they need to grow.
The Exchange’s policy proposals include:
- Introducing a more favourable CGT regime for investment in quoted companies.
- Allowing VCT participation in the secondary market.
- Raising VCT investment ceilings.
- Allowing ISA investment in quoted companies.
- Abolishing Stamp Duty over five years.
Commenting on the submission, Marcus Stuttard, Head of AIM, said:
“This consultation represents an excellent opportunity for industry groups and businesses to work together with the Government to deliver real and tangible benefits to the UK’s SME community. The targeted proposals outlined in this submission will help attract a wider set of investors to growth companies, providing them with vital initial capital and supporting deeper liquidity in the trading of their shares, generating a virtuous circle of investment and growth.”
In its response the Exchange makes policy recommendations to support business funding across several key areas:
A reduced CGT rate or roll-over relief for capital gains on investment in companies on growth markets would not only boost liquidity but also encourage investors to re-invest their gains into smaller companies creating a more vibrant market for the longer term.
Allowing VCT participation in the secondary market would provide urgently needed liquidity through funds that are already accounted for by the Treasury, while increasing the gross asset ceilings for VCTs from £7 million to £15 million and the employee test limit from 50 to 250 employees would make investment capital available to a wider pool of growth companies and SMEs.
To bring a wider set of investors and boost liquidity in the secondary market, the Exchange calls on the Government to amend ISA rules to allow investment in unlisted companies, like those on AIM. The incremental investment that could result from AIM shares being made eligible for ISAs would partially offset the capital and liquidity that has been withdrawn from smaller companies during the financial crisis. This would further allow qualifying companies to diversify their shareholder registers.
Phasing out or abolishing Stamp Duty as part of a five year corporate tax strategy would further boost the efficiency of equity markets for UK companies, savers and investors. This measure would be revenue neutral for the Treasury and increase the total amount of capital investment by up to £7.5 billion a year. As a reduced measure, the Exchange would welcome a targeted abolition of Stamp Duty for SMEs as a means of supporting growth companies’ access to equity capital.
The London Stock Exchange plays a central role in the UK’s small cap funding environment. More than 2,600 UK companies have joined the market since 1995, raising £24 billion at admission and a further £24 billion once on market. Today, there are 1,000 UK incorporated AIM companies that employ over 250,000 people and have an aggregate market value of £36.75 billion.