Last month’s budget – the first to be delivered by a Labour chancellor in almost a decade and a half – had the opportunity to breathe some much-needed life back into London in a move that could have helped revive it as a vibrant capital markets venue. Whilst news of change to inheritance tax carve outs in the AIM market were of little surprise – and indeed didn’t go as far as many had feared – the government seemingly fell some way short here in fostering competition or driving innovation.
At a time when private markets are proliferating, this budget offered an ideal opportunity to look holistically at how capital markets have evolved in recent years and what the capital market of the future may look like. Instead, we have seen action to row back what were arguably generous tax break on AIM along with a few more clues over the timing and shape of the PISCES market launch – but not much else.
This is however a new government with a raft of high profile, public-interest priorities to contend with. Perhaps they can be excused for not having the future of the City at the top of the agenda this time around, but legislation-driven reform here is overdue – and we certainly cannot afford to wait for another change in administration before progress is seen.
Three points where we believe reform could deliver quick gains for the City – and UK plc.
- Create an equivalence with the Eurobond market and explicitly waive stamp duty on bond transactions. The once vibrant UK commercial debt market has dried up, with the bulk of transactions routing through the European Union where more favourable tax treatments prevail. Levelling the playing field here would come at zero cost to the Exchequer as this market no longer exists in any meaningful way, but would have the potential to generate jobs and boost GDP in the process. Given the EU’s post-Brexit treatment of the UK as a third country, bringing this work back onshore would at least allow some of that oft talked about Brexit dividend to be realised.
- Encouraging private markets. Whilst the budget touched on both the AIM market and the soon to be formed PISCES initiative from the London Stock Exchange, more could have been done here to foster growth amongst the rising number of private markets we have in London. Incorporating these growth markets into the same tax structure which AIM now operates under – no stamp duty on transactions and a degree of inheritance tax relief – would have sent a strong signal that the government understands the evolution of this market and the importance of fostering strong competition on equal terms here.
- Action to mandate CSD interoperability to make markets more efficient. The Central Securities Depositories Regulations 2014, has been in place for over a decade now. Whilst this was initially a pan-EU initiative, Brexit left the UK able to break from key timelines here but progress here has been painfully slow of late. The lack of competition in this vital part of the market’s plumbing results in higher transaction costs. Anything to encourage investment here and in turn drive product innovation can only be a positive – something that could easily be folded into wider reforms for the City.
Avenir’s digital first structure leaves us well positioned to react to developments in the underlying market, meeting the needs of issuers and investors alike across multiple asset classes. There’s plenty of scope for reform here but without suitable incentives which are backed by appropriate legislation, it’s going to be difficult to encourage the private sector to make the investments that are needed. A holistic view is absolutely necessary, not least because with the City accounting for 25% of UK GDP, preserving its fortunes and retaining the support of the people who drive this sector will be instrumental in ensuring Labour’s ambitious spending plans can be met without landing the working person with punitive tax hikes.
An amended version of this article originally appeared in the November 2024 version of AIM Journal. You can download a printable version here.