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.
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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.
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