London’s junior market AIM is under threat of collapse from potential plans to hike taxes on its shares in next month’s budget, the chief of the London Stock Exchange has warned the government.
In a letter to City minister Tulip Siddiq, LSE boss Julia Hoggett said that the “ongoing viability” of AIM would be threatened by the rumoured scheme, according to Sky News.
“The current fragility of the market and this concern is shared by companies and fund managers across the market,” Hoggett wrote.
Rumours began to emerge last week that tax relief on AIM could be scrapped in the budget, sending City sources warning that this could be Labour’s “Liz Truss moment”.
“Rachel Reeves may be on the verge of doing irrecoverable damage to the AIM market and creating market chaos for smaller companies,” Darius McDermott, managing director of FundCalibre, told City A.M.
Investment bank Peel Hunt calculated that the proposed plans could cause 15 per cent of the cash in AIM to be withdrawn immediately, leading to a 20-30 per cent drop in the value of its stocks.
It seems that the LSE itself agrees, with Hoggett warning to the City minister that the plan to remove business relief (BR) would “remove a core source of capital undermining the market’s capital base and bringing its viability into question over the short to medium term”.
“Given the illiquid nature of smaller companies, we are concerned that this volatility would have a disproportionate impact on share prices across the market,” she added.
Removal of business relief will have direct impact on AIM
Hoggett also noted that the rumours came as the AIM market was already under stress, and any actions could blunt the attempts to improve the situation, such as the development of the Private Intermittent Securities and Capital Exchange System (PISCES).
“We are genuinely concerned that the removal of BR and its direct impact on growth markets such as AIM would create a very negative perception about the government’s commitment to this agenda,” wrote Hoggett.
“The package of fiscal incentives including EIS, VCT and BR are designed to address long-standing market failures to ensure companies can transition to the public market, raise capital, scale and stay in the UK,” she added.
“Without these measures, investors would likely concentrate their investments in larger, more liquid companies, denying growth companies access to risk equity capital through the public markets.”
AIM has been a “crucial” part of the UK economy to provide funding for smaller companies, the LSE boss added, citing data that AIM companies had added £35.7bn to UK GDP and supported more than 410,000 jobs last year.
“Furthermore, through their supply chain expenditure, these companies support a further 212,000 jobs and £18.6bn of GVA and are estimated to contribute £5.4bn in corporation tax,” she wrote.
London Stock Exchange Group has been contacted for comment.