London Stock Exchange Group welcomes proposals to include growth market shares in ISAs

  • One step towards increasing equity investment in SMEs
  • LSEG urges Budget measures to kick start equity markets for small and mid sized companies
  • Strong industry support for removal of Stamp Duty on SME shares and tax relief for small company investors in the Budget

London Stock Exchange Group (LSEG) today welcomes HM Treasury’s proposals to make companies admitted to growth markets eligible for stocks and shares ISAs.

This change sends a positive signal to the investor and issuer communities. It provides additional investor choice, and is a step in the right direction to bringing a wider set of investors to small and medium enterprises (SMEs). However it is only part of the solution.

It is now vital to build on this tax revenue-neutral proposal, and LSEG is proposing in its Budget Submission a package of measures to significantly boost investment in SMEs. If implemented it will send a strong message to entrepreneurs that the UK equity markets are open for business. These measures include calling on the Chancellor to capitalise on the positive outlook for the IPO market by:

• Removing Stamp Duty on the purchase of growth market shares
• Lowering the rate of Capital Gains Tax on investment in growth companies to 10 per cent
• Continuing to support London Stock Exchange’s new High Growth Segment, tailored to the needs of innovative, fast growing firms
• Delivering a regulatory approach that encourages investment in SMEs
• Prioritising support for the UK’s high growth companies in EU regulations
If these measures are implemented, analysis shows:

• Existing AIM companies will create up to 38,000 new jobs
• The cost of capital for high growth UK companies will be reduced by 25 per cent
• They will be tax neutral over the medium term

Alexander Justham, Chief Executive, London Stock Exchange plc, said:

“The UK needs to encourage investment in its growth businesses, and reduce the reliance on bank lending for their funding needs. The proposal to allow growth market shares in ISAs is a positive step in that direction, but only 3 per cent of SMEs use equity to fund their growth, in part due to tax and regulatory barriers. SMEs are the engines of our economic growth; the main source of new jobs in the UK. If implemented, our package of measures would incentivise significantly more investment in SMEs, and would be a huge boost to small and growing firms up and down the country.”

Tim Ward, CEO, Quoted Companies Alliance (QCA), said:

“The Quoted Companies Alliance has been actively campaigning for the inclusion of AIM shares in ISAs for some time and welcomes this consultation. This is all about growth. This initiative will provide fuel for the engines of growth. Investing in AIM shares means backing UK growth companies. However, the Government should use the Budget to deliver a further boost to SME growth through incentivising investment by removing the 5% shareholding requirement on Entrepreneurs’ Relief and abolishing stamp duty on all AIM transactions.”

LSEG has received wide ranging support for its position on the inclusion of growth market shares in ISAs, and the package of measures it proposes in its Budget Submission. Supportive organisations include the Confederation of British Industry (CBI), ICAP Securities and Derivatives Exchange (ISDX), City of London, British Venture Capital Association (BVCA), Tech City Investment Organisation, NESTA, British Banking Association (BBA), Quoted Companies Alliance (QCA), the UK Business Angels Association (UKBAA), the Association of British Insurers (ABI) and the Association of Private Client Investment Managers and Stockbrokers (APCIMS).1

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FOR FURTHER INFORMATION PLEASE CONTACT:
Tom Gilbert /   Press Office +44 (0)20 7797 1222
Jonny Blostone   newsroom@londonstockexchange.com

Notes to editors:

1. Below is a further selection of quotes from organisations supportive of LSEG’s proposals.

Matthew Fell, Director of Competitive Markets, CBI:

“The UK’s mid-sized businesses have huge potential, but lack of access to capital can be a major barrier to growth. London Stock Exchange’s AIM market is a key source of equity finance for growing mid-sized business and we support the removal of stamp duty on AIM shares, to provide a real boost for investment in our future champions.”

Seth Johnson, Chief Executive Officer, ICAP Securities and Derivatives Exchange:

“ISDX would welcome any action by the government that encourages increased investment in quoted SMEs and reduces the barriers stifling growth. SMEs play a significant role in the UK economy and are the companies that will create the growth and the jobs our country needs.  We endorse calls from the London Stock Exchange Group for a package of measures to help open up markets for these companies, with specific support for the lowering of the CGT rate to 10%, which will have a significant impact on the availability of funding.”

Mark Boleat, Policy Chairman at the City of London Corporation:

“Equity markets have a crucial role to play in financing the small and mid cap companies that hold the key to delivering jobs and growth across the UK. We endorse the London Stock’s Exchange’s submission – especially the proposed removal of Stamp Duty on AIM and the new “high growth segment”  – as a welcome package of measures that could support business growth and the generation of jobs across the wider economy.”
 

Robert Hingley, Director of Investment Affairs, ABI:
 
“The ABI supports the direction of travel proposed by the London Stock Exchange in its package of measures- in particular the removal of Stamp Duty on AIM and the development of a new route to market for high-growth companies.  We want to see high-growth companies floating in the UK and for investors to have the opportunity to back these companies.”

Alan Newman, Chief Financial Officer, YouGov

“We welcome proposals to include AIM shares in ISAs, which corrects an anomaly and will help small and medium-sized companies like ourselves to attract a wider range of investors.  This proposal is though just one step in the right direction. SMEs need more support to fuel the engines of growth by improving the availability of equity funding. New equity is taxed four times, whereas debt is tax deductible, so we support calls for the abolition of stamp duty on all AIM transactions, which would provide an even more powerful boost to SME funding and a real incentive to investors. “

Stian Westlake, Executive Director of Policy and Research, NESTA

“Our research has shown that high-growth businesses hold the key to economic growth and job creation in the UK. If high-growth firms are to realise their potential, the UK needs thriving public equity markets to help them grow – so today’s announcement on ISAs is welcome. The Government should build on this by implementing the CBI’s call for stamp duty on all AIM transactions to be abolished. This will provide  a real net incentive for investors in the high-growth companies on which our economy depends.”

Tom Papworth, Research Associate, CentreForum

“We are delighted that the government is looking to implement one of the recommendations we made in our recent report The path to IPO: funding SME jobs and growth. Anything that makes it easier and more attractive for high growth SMEs to access capital through the public offering of shares is good news for growth and job creation. But this is only a small step towards incentivising investors. The major gains in encouraging capital flows to high growth SMEs will come from abolishing stamp duty on shares traded on growth markets; reducing capital gains tax in line with corporation tax paid; opening up entrepreneurs' relief and changing the culture, market structure and regulations surrounding these businesses.”

Mark Florman, CEO, British Venture Capital Association

“Equity markets like AIM have a crucial role to play in financing the small and mid cap companies that hold the key to delivering jobs and growth across the UK. Today’s announcement on ISAs is therefore a welcome step in the right direction and provides a helpful signal to investors. However as a revenue-neutral move it is not as strong as a real net fiscal incentive would be – such as the abolition of stamp duty on all AIM transactions.”

BBA Chief Executive, Anthony Browne
"The BBA fully supports moves to allow Alternative Investment Market (AIM) and other equity market shares to be held in ISAs. It will be good for the economy and good for savers, giving another source of funding for businesses looking to grow and giving savers a greater choice of tax-free investments.

"The banking industry is undertaking a great deal of work to facilitate greater access to alternative sources of finance available to businesses.  This includes angel investors, Community Development Finance Institutions, asset finance and many more which suit a variety of differing business needs.  
"Broadening the ISA scheme will help to increase investment in businesses and provide real benefits to consumers."

Gavin Oldham, CEO, The Share Centre
“We are delighted that the Government is proposing that AIM shares be allowed in ISAs, something we have campaigned for over many years.  In contrast to traditional stockbrokers, nearly a third of all equity transactions at The Share Centre are in AIM shares and the strong interest in self-select stocks and shares ISAs will significantly improve SME prospects for raising new capital.

We have also called repeatedly for the abolition of stamp duty on AIM shares.  This transaction tax is a sharp brake on liquidity compared with spread-betting, which has drawn traders with a higher risk appetite away from AIM to find their exposure in leveraged positions on main board stocks.  We therefore strongly support the London Stock Exchange’s appeal for abolishing stamp duty on AIM shares, and are confident that the £72m cost to HM Treasury will quickly be replaced by tax income from the invigorated SME sector, as the Oxera research suggests.”

Tony Vine-Lott, Director General, Tax Incentivised Savings Association (TISA)
“We are pleased that the Government wants to consult with a view to allowing ISA investors the choice of backing UK growth companies on AIM. This sends a good message that supporting equity investment in SMEs can be a strong lever to deliver growth and job creation. It can also give investors wider choices when making ISA investment decisions. Tax incentives have a key role to play in encouraging investors towards investment in high growth companies and we would like to see the Government introduce further measures to encourage UK savers in the coming Budget. We look forward to engaging in the debate around these proposals.”

Paul Killik, Senior Executive Officer, Killik & Co
“Killik & Co are  a medium sized full service stock broking form, specialising in Private Investors only. We have around 20,000 UK clients and administer about £3.3bn of their assets.

We strongly welcome the proposal to include AIM stocks in ISAs. We have been arguing for some time that Private Investors are much more important as a percentage of the AIM market than they are of the main market and we have seen figures of ownership as high as 40% to 45%. However, with the ISA allowance currently at a very generous level and available to both husband and wife, we are finding that an increasing number of our Private Investors now have all their non-Pension savings in ISAs. Such investors are obviously unwilling to remove monies from an ISA in order to buy an AIM stock, so they choose not to buy. An analogy is the reduction of the blood supply to the heart. We find it difficult to see how the AIM market could exist on institutional monies alone, retail money is a critical source of capital and daily liquidity.

Removing the millstone of stamp duty on Aim-listed smaller companies would provide further incentive for retail investors to support these firms and encourage them to thrive a time when many are being denied access to capital by other means such as bank lending.

Jenny Tooth, CEO, UK Business Angels Association
“We welcome today’s announcement on ISAs, which sends a helpful signal to investors about the desirability of backing high growth companies on AIM, many of whom have received earlier rounds of funding from angel investors. An even stronger signal than this revenue neutral move would be to abolish stamp duty on all AIM transactions and for a lower rate of 10 per cent capital gains tax for investment in growth companies. This will enable these companies to achieve global growth, whilst offering the potential of liquidity to angel investors.”

Steve Bates, CEO, UK BioIndustry Association
“The BioIndustry Association is pleased that government wants to balance the playing field by enabling UK ISA investors to fund AIM-quoted UK bioscience companies like e-Therapeutics. The government should unlock the true patriotic potential of UK investors to back British jobs and growth by introducing Citizens’ Innovation Funds and consider abolishing stamp duty on all AIM transactions.”

Tim May, Chief Executive, APCIMS
“APCIMS very much welcomes the Government’s decision to consult on allowing AIM shares into ISAs. We believe that such a move will enable clients and wealth management firms to invest in a broader range of companies as part of their ISA portfolio as well as helping to simplify the administration of ISAs.
We hope that this is just one part of a process by Government to assist growth and make SMEs more accessible to private investors and that further incentives such as the removal of stamp duty on such shares will be actively considered by the Government.”

Charlotte Black, Head of Corporate Affairs, Brewin Dolphin
“The possibility of AIM shares in ISAs is exciting news – a positive signal from the Government for those who are prepared to put up a proportion of their savings as risk capital for small growth companies and to take a long term view – that some diversification into niche sectors not offered by the Main Market is to be encouraged with ISA tax incentives and the removal of stamp duty, in addition to their eligibility for VCTs, EIS and Business Property Relief. It is important for SMEs and for investors that equity capital is made a more attractive option than debt finance.”

About London Stock Exchange Group:

London Stock Exchange Group (LSE.L) sits at the heart of the world’s financial community. The Group operates a broad range of international equity, bond and derivatives markets, including London Stock Exchange; Borsa Italiana; MTS, Europe's leading fixed income market; and Turquoise, offering UK and Russian derivatives trading, pan-European and US lit and dark equity trading. Through its markets, the Group offers international business unrivalled access to Europe’s capital markets.

The Group is a leading developer of high performance trading platforms and capital markets software and also offers its customers around the world access to an extensive range of real-time and reference data products and market-leading post-trade services. The Group is also home to a world leading index provider FTSE, which creates and manages over 200,000 equity, bond and alternative asset class indices.

Headquartered in London, United Kingdom with significant operations in Italy and Sri Lanka, the Group employs around 1,900 people.

Further information on London Stock Exchange Group can be found at www.londonstockexchangegroup.com.