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The Chancellor has been urged to cut stamp duty on shares outside the FTSE 100 to revitalize the London market.
In a hard-hitting report on the “tough” crisis facing British small businesses, think tank New Financial urged Rachel Reeves to take action after a “brutal” few decades for UK-listed companies.
He revealed that more than 600 companies worth less than £1bn have left the stock market in the last 20 years, and said the smallest companies “have been the hardest hit of all”.
Douglas Flint, chairman of asset management giant Abrdn, called on ministers to take action, saying the Government “cannot afford to ignore UK small caps”.
Crisis: Chancellor urged to cut stamp duty after ‘brutal’ few decades for UK-listed companies
Experts are calling for the abolition of stamp duty for all listed companies outside the FTSE 100, extending a tax break already granted to shares on the London junior market Aim.
It comes amid fears about the health of the London stock market, which has suffered an exodus of companies in recent years.
Big companies, including construction materials group CRH and gambling giant Flutter, owner of Paddy Power and Betfair, have moved their main listings to the United States.
Cambridge-based chipmaker Arm snubbed the City when it decided to float New York instead of London last year in its search.
of a higher rating. Meanwhile, experts have weighed in on a debate about the future of AIM, which saw 76 companies leave last year.
The Tony Blair Institute, run by the former Labor prime minister, last week called for the abolition of the growth market. The organization said AIM had “failed” in its purpose of providing a home for expanding businesses.
But the market also has fierce defenders who say it is critical to the growth of smaller companies.
New Financial’s report laid bare the scale of the crisis facing London-listed companies with a market capitalization of less than £1bn on both AIM and the main market.
In seven of the last ten years, more small listed companies have left the UK stock market than entered.
A significant factor has been a “surprising” collapse in demand from both institutional and retail investors, with UK pension funds bearing much of the blame, the report said.
Only one local government pension scheme still has a specific allocation to smaller UK firms, down from 18 in 2013. And August was the 36th consecutive month of net fund outflows from smaller UK firms.
But despite the challenges, small caps have generated “stellar returns” over the long term, New Financial said.
Over the past 25 years, smaller companies, including those listed on AIM, generated an annualized total return of 7.4 percent, in line with Wall Street’s S&P 500 and almost 50 percent higher than the market British in general.
Abrdn, who backed the New Financial report, said stamp duty on UK shares should be scrapped entirely, but said starting with companies outside the FTSE 100 would be “a good starting point”.
The tax forces investors to pay a 0.5 percent tax when buying British shares, although they pay nothing if they invest money in foreign companies.
He also called for minimum pension contributions through auto-enrolment to be “significantly increased” and for the UK’s “cumbersome” ISA system to be simplified.
And the asset manager said the Government should launch a national campaign to get the UK to invest and restructure financial education in schools.
Flint said: ‘Smaller listed companies are an integral part of the UK economy.
‘They drive innovation and generate wealth and employment in almost every corner of the country. As the Government is serious about driving UK growth, we need to take a closer look at the small cap sector and the findings and recommendations of this report.
‘As policymakers consider what can be done to boost investment in the UK generally, we cannot afford to ignore UK small caps.
“This segment of the market is thriving in many ways and, if the right steps are taken, could become even more successful.”
The Chancellor is considering scrapping inheritance tax relief on AIM shares in the Budget later this month, which the Institute for Fiscal Studies says could raise £1.6bn a year.
But experts have said eliminating the tax break could stifle growth.
Robert Forrester, chief executive of car dealer Vertu Motors, which listed on Aim in 2006, said: “If you have a growth agenda (then), removing an equity fund from a junior market has a significant benefit for growth companies. It is a very mocking strategy.
‘We have used the AIM market (to raise funds) and have created an excessive number of good jobs across the UK.
‘Could we have done that without the AIM marketplace?
“Probably not.”
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