By Stuart Lucas on 7th March 2017
As Philip Hammond prepares to deliver his first and last Spring Budget, the Chancellor is presented with a series of notable challenges that will need to be addressed if the Government’s ambitions for the UK’s private sector are to come into fruition. After outlining a Modern Industrial Strategy heavily weighted towards catalysing investment into scaling companies, the Government now finds itself with a more pressing need than ever to invigorate private investment into this vital category of business. One way of doing this, as evident in the Government’s reform to both the alternative investment market (AIM) and Main Market shares in 2014, would be to review an unnecessary barrier to investment around Stamp Duty charges on private share transactions.
In January the Government launched its Modern Industrial Strategy green paper: a document which opens a consultation process with the private sector to uncover means of generating nationwide economic growth post-Brexit. As part of this agenda, a commitment to raise productivity by marrying Britain’s effective start-up culture with the right support and investment has emerged as a core priority for 2017. As a reassessment of the policies in place to support high-growth enterprise commences, the green paper holds significant promise for addressing the needs of investors and entrepreneurs. To unleash the full potential of private companies, challenges to private investment imposed by Stamp Duty taxes on share trading must be abolished across all fast-growing companies – as opposed to solely those positioned on the UK’s listed markets.
As testament to the potential of such an initiative, when the Government abolished the Stamp Duty tax on all transactions made by private investors on the AIM and High Growth Segment (HGS) in April 2014, there was a significant spike in investor activity. Research by UHY Hacker Young found that the average daily amount traded per company soared by almost 50 per cent in the year that followed. By establishing a beneficial new environment for investors to access growth markets, the Government was able to catalyse significant investment into established, fast-growing British companies.
While a welcome step forward, the Government now needs to extend this relief to all British businesses that fall within growth markets, inclusive of the UK’s vibrant community of private scale-ups. Investors in these companies still bare the added cost of Stamp Duty, which reduces their ability to recycle locked-in cash. As a further reflection of the importance of prioritising shareholder interests, our latest research report found that more than a million UK investors in private companies would invest in further high-growth companies if they weren’t locked-in by the difficulty of releasing equity. If the full potential of Britain’s private sector is to be unleashed at this critical moment for the country’s economy, the Chancellor must review the barriers that are currently impeding the levels of investment merited by the growth prospects of British scale-ups.
After all, the UK does have a buoyant community of SMEs supported by a vibrant private investor community. Over recent decades, the British Government has taken measures which have provided vital support in boosting this category of business at the heart of the UK private sector. The Enterprise Investment Scheme (EIS) is a perfect example of this; since its inception in 1993, the scheme has provided £14.2 billion of support to 24,500 British companies, with recent Intelligent Partnership research demonstrating that confidence in the scheme is still growing. This commitment to supporting investment into private businesses through tax incentives has been backed up by the enactment of Investors’ Relief (IR) in September 2016 – the IR has expanded the support available to businesses beyond the conditions that apply EIS. For scaling businesses seeking growth finance, these initiatives have proven extremely valuable. What’s more, they demonstrate the importance of tax reliefs for investors who are putting essential capital into the UK’s private sector, underlining why the Government must review its policies on Stamp Duty.
In advance of Brexit negotiations, there is no better time to support the growth of Britain’s private businesses by removing the barrier to investment posed by the continued imposition of Stamp Duty upon private share transactions. What the Government deemed to be ‘growth markets’ in 2014, almost three years on, is still limited to listed companies and therefore fails to provide support for the full variety of businesses that fulfil a vital role in the growth of the UK private sector.
Abolishing the Stamp Duty charge on all share purchase transactions must be a relief that is available not only to the realms of companies on AIM and the Main Market, but also scaling businesses and the private investor community that supports them. By doing so, the Government would strengthen the bold steps taken in 2014, thus creating an incentive for private investment into the companies that are set to be the main drivers of tomorrow’s economic growth. With the May Government now pursuing a scale-up agenda outlined in the modern industrial strategy, supporting the small to medium-sized enterprises at the heart of the UK’s private sector will be of the utmost importance.
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