Britain’s growth will be powered by smaller firms
WHEN Xavier Rolet, chief executive of London Stock Exchange Group, said in Morning Wire on 9 January that small and medium enterprises provide the best hope for reviving the UK economy, I cheered. “Without the growth of fledgling companies, there will be little meaningful job creation,” he said. How true.
When regulators and politicians talk about business, no distinction is made between big and smaller companies. All firms get lumbered with the same regulations – and the little guy pays the price.
On the London stock market, the needs and resources at either end of the scale are vastly different, yet companies with market capitalisations ranging from a few million pounds to over £100bn are often treated the same. Why does this matter? The listed UK companies outside the FTSE 100 are precisely the sort of businesses that create wealth and employment. They have their growth years ahead of them. For now their priorities will be survival, investment and, if they can, expansion. Typically these firms, plus those listed on Aim, are in no position to represent a major risk to the economy.
The regulatory challenges they face are more than a nuisance – they can threaten the lives of businesses. Between 2002 and 2010, small and medium-sized enterprises created 85 per cent of all new jobs across Europe, according to a European Commission study. That’s why Michel Barnier, the European commissioner for internal markets and services, is vocal about their potential. But regulators continue to treat every listed company in the same way because, they say, investors might get confused otherwise.
Why not promote the largest companies across Europe to their own mega-market? This would ring-fence potential systemic risk, enabling UK and European regulators and lawmakers to make more targeted rules for these largest companies without dragging the smaller ones in too.
Smaller quoted companies without the same collective systemic risk would get a regulatory environment fit for them, their investors and other stakeholders – not necessarily reduced, but appropriate.
Politicians could create an asset class across Europe of smaller, vibrant companies – key local employers that create jobs. Pension funds and insurance companies could be mandated to disclose their investment policy towards this class. Such companies are seen by politicians as engines for growth – let’s see how much of our pension money and premiums go into them.
Government could provide fiscal incentives to encourage long-term investment – like providing dividend tax credits and cutting capital gains tax on shares held for over three years.
With raised awareness and the appropriate regulatory responsibility, small and mid-cap quoted companies could raise money efficiently. Ten years ago there were just under 1,100 UK domestic companies on the main market of the London Stock Exchange – at the end of 2011 this had fallen below 600.
It’s time to revitalise our primary markets and jumpstart the engines of growth. We might see a revival of IPO activity too.
Tim Ward is chief executive of the Quoted Companies Alliance, the representative body for the UK’s small and mid-sized quoted company sector.