Urgent measures like cutting stamp duty on FTSE 250 shares are needed to save smaller British companies, a group of City heavyweights have argued.
In seven of the past 10 years, more listed small companies have left the UK stock market than joined it, and this trend will continue unless serious action is taken, a new report from think tank New Financial said.
The report was published in collaboration with asset manager Abrdn, clearing house Euroclear, investment trust specialist Winterflood and the Quoted Companies Alliance.
Abrdn said that while it maintained its position that stamp duty on all UK shares should be scrapped, extending the stamp duty exemption that currently exists for AIM to all listed companies outside the FTSE 100 “could be a good starting point”.
Over the past 20 years, the number of companies on the FTSE worth less than £1bn has fallen by nearly a third, as almost 600 companies have fallen off the stock market.
A significant factor in the decline has been the collapse in demand from UK pension funds; just one Local Government Pension Scheme has a specific allocation to UK smaller companies, compared with 18 back in 2013.
Therefore, the report also called for extending last year’s Mansion House Compact, which saw the government pushing pension providers to pledge an increase in their allocation to private markets, including private equity and venture capital.
It argued that this should be extended to include listed small caps in the UK, as well as infrastructure, real estate, and private debt.
Other proposed policy changes included simplification of the ISA system, “significantly” increasing minimum pension contributions, and a “shake-up” of financial education in schools to encourage investment.
“Given that the government is serious about boosting UK growth, we must look carefully at the small cap sector and the findings and recommendations of this report,” said Douglas Flint, chair of Abrdn.
“If policymakers consider what can be done to boost investment in the UK generally, we cannot afford to ignore UK small caps.”