Study reveals AIM's £21bn contribution to UK economy
In 2009, companies on the London Stock Exchange’s growth market AIM contributed a total of £21 billion to UK GDP and supported 570,000 jobs through direct, supply chain and multiplier effects, but greater fiscal incentives and fewer restrictions are needed to stem net outflows of capital from small caps and enhance the economic benefits delivered by the sector, according to a report by Grant Thornton, commissioned by the London Stock Exchange.
"If AIM is to continue as the world's leading platform for growth companies looking to raise capital, we need to lift unnecessary restrictions on the investment criteria by Venture Capital Trusts and reverse the gradual erosion of fiscal incentives," commented Stephen Gifford, Chief Economist at Grant Thornton UK LLP.
The total direct and indirect impacts of AIM are considerable. AIM companies directly contribute around £12 billion to GDP and employed around 250,000 people.
A further £9 billion of GDP and 320,000 jobs are supported indirectly through supply chain and multiplier effects.
"AIM has a great track record, but investment trends since 2002 show consistent net outflows from the UK small cap sector. Over the years, changes to incentives for investors in AIM securities have diminished their effectiveness and reduced investor confidence, for example by abolishing Business Asset Taper Relief and introducing ever tighter restrictions on the investment criteria for Venture Capital Trusts," Gifford explained.
The report calls for five action points to support growth firms in raising capital on AIM and to enhance the economic benefits the market delivers:
1. To allow participation by Venture Capital Trusts (VCTs) in the secondary market
2. To increase the gross asset test for VCTs to £15 million and 250 employees.
3. To secure a favourable Capital Gains Tax regime for investing in SMEs
4. To commit to existing incentives for at least 5 years
5. To consider whether AIM securities should be eligible for inclusion within ISAs.
"Restrictions which mean relatively few AIM companies are eligible for investments by Venture Capital Trusts are obviously counterproductive. VCTs are a vital catalyst for AIM, often acting as an anchor investor that encourages other institutional funds to invest in the same company," argued Gifford.
Commenting on the report’s proposals, Marcus Stuttard, Head of AIM, said:
“This report underlines the importance of AIM, to UK jobs and the UK economy. AIM is already a hub of entrepreneurial activity, but it is vital that the market can draw on the most supportive business environment possible if it is to achieve its full potential in helping power economic recovery. The findings and proposals in this report support the recommendations the London Stock Exchange has put forward in its response to the Government’s consultation on Financing a private sector recovery. We ask Government to recognise the importance of a package of measures needed to attract investors to SMEs and allow companies to raise capital at an acceptable cost.”
Gifford agreed, concluding, "Britain needs to nurture, support and encourage a culture of innovation, investment and enterprise, to help rebalance the economy and to deliver sustainable and high economic growth over the coming years. AIM plays an important role in ensuring that innovative small and medium sized companies have access to external finance to expand."
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Alastair Fairbrother, Press Office London Stock Exchange Group 020 7797 1104
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About London Stock Exchange Group:
London Stock Exchange Group is Europe's leading diversified exchange business, incorporating Borsa Italiana and the London Stock Exchange. With over 500 member firms and more than 3,000 companies quoted across its markets, the Group operates the largest and most liquid equity marketplace in Europe.
The London Stock Exchange itself is the world's most international exchange with around 600 overseas companies from almost 70 countries. These figures include international companies quoted on the Alternative Investment Market (AIM), the London Stock Exchange's growth market, and the world's most successful market for small and medium sized enterprises with over 1,200 companies.
The Group offers trading in a wide range of instruments, holding the number one position in the trading of exchange-traded products (ETFs and ETCs) and through its interest in MTS, is Europe's leading platform for the trading of fixed income products. Through the Order Book for Retail Bonds and Mercato Telematico delle Obbligazioni (MOT) the Group also offers a comprehensive range of UK and European corporate and government bond trading services. Its Italian Derivatives Exchange Market (IDEM) sees over €2.5 billion worth of trading every day and through EDX London the Group provides a facility for the trading of Scandinavian and Russian equity derivatives.
London Stock Exchange Group also offers post-trade services such as netting, clearing and settlement on an efficient and competitive basis. These include services from Monte Titoli, the Central Securities Depository for all Italian financial instruments, and Cassa di Compensazione & Garanzia (CC&G), which in July 2009 was granted Recognised Overseas Clearing House (ROCH) status by the FSA to operate in the UK.
With the acquisition of MillenniumIT, the Group encompasses a leading developer of low cost high performance trading platforms and financial markets software serving both the industry and the Group's own businesses.
Since February 2010 London Stock Exchange Group has owned a majority stake in Turquoise, a Multilateral Trading Facility (MTF) providing pan-European and US lit and dark equity trading in some 2,000 securities across 19 countries.