AIM is turning 30, but there’s precious little to celebrate
We need a change of mindset about AIM, to once more be truly seen as a growth index. As such it should be afforded the appropriate tax incentives that reflect the perceived higher risk of earlier stage growth companies, says Dominic Tayler
London’s junior market is quietly turning 30 today. For a market conceived to be a nursery for ambitious, growing companies, three decades of life should be a cause for celebration. Yet looking at AIM’s recent troubles, the mood in the City is more sombre than celebratory.
From near-fatal policy changes to business relief in the October budget last year, to ongoing liquidity challenges, the market has faced significant headwinds. But it doesn’t have to be this way.
AIM’s capital crunch
One of the most glaring challenges for AIM is the long-term erosion of liquidity. This is grounded in the rise of passive investment strategies, and institutional investors turning their backs on risk and small caps, which has starved the market of vital capital.
Meanwhile, the UK has an ageing population and pensioners own a significant proportion of the market. Around 15 per cent of AIM’s liquidity is estimated to come from inheritance tax-focused fund solutions, which is precisely why the government’s rolling back of business relief posed a threat.
The recent Mansion House Accord, seeking to tap more of our pension system for UK investment, is a step in the right direction, but it remains to be seen if it will genuinely help AIM. My concern is whether UK allocations will come from equity or debt. If it’s the latter, AIM won’t see much benefit.
More than a trading floor
Policymakers talk about economic growth and jobs, but often overlook AIM’s vital role. These aren’t just abstract entities – they represent real workers’ jobs, the lifeblood of our private sector.
One report has estimated AIM’s overall economic impact as equivalent to £68bn and over 778,000 jobs. Pioneers like the late Brian Winterflood understood that this market was about capital raising to develop businesses and all the accompanying benefits this brings, not just a trading floor.
The recent news of Shein opting to list elsewhere exemplifies the broader challenges facing our capital markets. If London is no longer an attractive home for big players, how can we expect smaller, growing companies to thrive? Steps to support the small-cap end of the market is a good place to start if the UK is to make inroads attracting larger corporate listings.
Reform, not removal
The challenge is that capital market reform needs a truly joined-up solution but policy divisions and misunderstandings among policymakers are limiting meaningful progress. The changes to business relief for AIM stocks during the October budget was a prime example of this. While the changes did not go as far as feared, it has done little to help.
My view is clear: IHT business relief is a vital tool and reform, not removal, would be a more sensible step. Some AIM stocks rival FTSE100 companies in size, so if policymakers want to shake up the system then introducing size thresholds would have been a better place to start, to ensure the benefits and incentivisation created by tax relief truly focuses on the smallest businesses.
We need a change of mindset about AIM, to once more be truly seen as a growth index. As such it should be afforded the appropriate tax incentives that reflect the perceived higher risk of earlier stage growth companies.
Footnote or future
Thirty years on and AIM stands at a crossroads. It is home to many quality, cash-generative businesses which are deserving of support, but the present reality is far from celebratory.
The government is set to reveal its strategy for capital markets at the July Mansion House speech, and would do well to consider these challenges facing smaller companies. AIM should and can be an engine for growth, not a historical footnote.
Dominic Tayler is UK Managing Director at independent investment manager Oakglen Wealth