Four ways to give London's Aim market a boost

Aim, the LSE’s junior stockmarket, is celebrating its 25th birthday. It could do with a makeover, says Matthew Lynn.

When it launched in 1995, the Alternative Investment Market, now known as Aim, was designed to be a slightly less regulated version of the main London Stock Exchange (LSE). The City had already dabbled in different forms of junior listing, with fewer rules; the new exchange was designed to build on that. In the 25 years since it launched, a lot of companies have listed their shares on it and it has some real stars. The fashion retailers Boohoo and Asos, and the drinks company Fever-Tree, are all major success stories. Yet few companies are still raising capital on Aim. Last year there were just 11 listings on the market, down from 35 in 2018. Aim was meant to be the British Nasdaq – home to companies such as Netflix, Apple and Facebook – but it is nowhere close to that. It is fading away. 

That isn’t right. The UK has a vibrant entrepreneurial culture and a growing technology industry. Our rate of new company formation is hitting record highs – or at least it was until the coronavirus crisis started – and we have more tech unicorns,  as start-ups worth more than $1bn are known, than any other country in Europe. There should be a British Nasdaq. How do we make it happen? Here are four ideas. 

1. Reduce the regulatory overload 

Over those 25 years we have imposed more than a dozen different governance codes on quoted companies. We have forced boards to be more accountable, and set targets for gender representation and limits on shareholdings. The result? Lots of entrepreneurs have decided it is simply too much hassle to list their companies, especially as they can raise plenty of money privately. There is an easy fix for that. We should exempt Aim companies from all of the governance codes. Of course, they would have to abide by company law, just like any other business. But there shouldn’t be any extra rules that come with a listing. 

2. Increase the tax breaks

When the market started, returns were free of capital gains tax so long as you held the shares for a set period of time. That has long gone. There are still a few inheritance tax breaks on Aim shares, so long as you have a small army of lawyers and accountants to work out the paperwork for you. Beyond that, there are no real tax advantages. And yet we have the Enterprise Investment Scheme and the Seed Enterprise Investment Scheme, which allow investors to claim tax relief on money they put into new private businesses. We could easily extend that to any company raising new money on Aim. We could also make Aim shares free of capital gains tax again – and if we extended that to founders, it would provide a huge incentive to list companies on the market.

3. Open it up to crowd-funding

In many ways, the crowd-funding platforms have already started spontaneously doing what the Aim market was designed for – creating a place where active, sophisticated inventors could take stakes in early-stage businesses. Some of them already offer limited secondary trading, allowing people to trade equities they already own. In reality, they already look a lot like a stockmarket, except with a lot less red tape. It would not be hard to fold at least some of that into Aim, and that would bring a huge new wave of companies onto the index.

4. Give it a blast of quantitative easing

It is not as if the Bank of England is exactly reluctant to print money right now. It already holds vast quantities of government debt, and through the coronavirus loan scheme it is pumping huge amounts into the economy to keep big companies afloat. The Bank could start buying Aim shares rather than gilts. Even £10bn would have a huge impact on such a small market. Prices would shoot up. Investors would make money, and companies and fund managers would flock to the index on the prospect of more gains to come. A lot of new investment would be encouraged very quickly – the Bank might even make a decent turn on the shares it buys. It would certainly do more to revitalise the economy than just printing more money for the government to spend. 

Recommended

Martin Sorrell’s spat with WPP
UK stockmarkets

Martin Sorrell’s spat with WPP

Advertising giant WPP has cancelled a long-term share award to Martin Sorrell, its founder and former CEO, accusing him of leaking confidential client…
7 May 2021
Micro-cap stocks: how to get huge returns from tiny firms
Small cap stocks

Micro-cap stocks: how to get huge returns from tiny firms

Micro-cap stocks are often overlooked, but the British market has plenty of them and their potential is massive. Max King picks the best two investmen…
3 May 2021
Share tips of the week
Share tips

Share tips of the week

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
30 Apr 2021
BP: really going “beyond petroleum” won't be easy
Energy stocks

BP: really going “beyond petroleum” won't be easy

BP is recovering and plans to become carbon neutral by 2050. Meanwhile, activist investors are targeting ExxonMobil. Matthew Partridge reports
30 Apr 2021

Most Popular

Big Tech on steroids: why the 2020s will be the “decade of the DAO”
Bitcoin & crypto

Big Tech on steroids: why the 2020s will be the “decade of the DAO”

Big tech companies have transformed the way we live our lives. But if you thought they were disruptive, you haven’t seen anything yet. As Dominic Fris…
6 May 2021
Cryptocurrency ether has hit an all-time high. Why? And will the bull market last?
Bitcoin & crypto

Cryptocurrency ether has hit an all-time high. Why? And will the bull market last?

Cryptocurrency ether – the world’s largest cryptocurrency by market cap after bitcoin – hit an all-time high this week. Saloni Sardana looks at what’s…
5 May 2021
Could you end up paying inheritance tax on your family home?
Inheritance tax

Could you end up paying inheritance tax on your family home?

The value of the average UK home has risen by 53% since April 2009, but the inheritance tax threshold has remained static. And that means more people …
7 May 2021