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EQ Q3 IPO Review 2023

Equiniti's Q3 IPO Review 2023

How To Revive The UK’s Equity Market

It’s fair to say that sentiment towards the City and its place among global financial centres isn’t exactly buoyant at the moment. Despite the fact London is still by far Europe’s largest financial centre, there are concerns that it is ceding ground to the likes of New York, Singapore and Hong Kong.

That is largely the result of three specific factors: a slowing IPO market, a lagging FTSE 100 index and the decision of some major names to leave London for rival indices.

This has focused the minds of policymakers, who over the past 18 months have been trying to find ways to boost the City’s competitiveness in the face of tough competition.

We have already seen regulators allow dual class share structures, lower free float requirements, reform secondary capital raising rules and revise SPAC regulations.

Further, the Chancellor, through his Mansion House Reforms, has secured pledges from the UK’s largest insurers to invest up to £75bn in growth companies by 2030.

Over the coming months, we can expect to see the proposals outlined in the Primary Markets Effectiveness Review and the Prospectus Review introduced.

But is there more we can do to ensure the City continues to thrive and prosper in the coming years?

The legislation that has been suggested and consulted on so far has tended to focus on making London a more attractive place to list, reducing the administrative burden on public companies and unlocking institutional investor capital.

Getting those three things will be vital to the City’s future prospects. But we believe boosting retail investor participation in the UK’s equity market will also be key.

Back in the 1960s, UK retail investors held roughly 54% of UK shares, according to government figures. Today that figure stands around 12%, according to the Office for National Statistics.

The more people that invest in UK companies, the more money firms have to drive growth, leading to more widespread prosperity and a healthier economy.

The big question, though, is how do you achieve that?

Perhaps the quickest and most effective lever policymakers could pull would be tax reform. Scrapping stamp duty on share purchases, for example, might remove barriers for some investors.

Alternatively, offering tax breaks, such as higher Capital Gains Tax allowances or higher ISA limited, for those investing in UK firms might encourage investors to ‘go local’. An inheritance tax break for those who invest in AIM-listed firms might encourage investors to look outside the FTSE 100 and 250.

A lot of the time retail investors are not able to participate in IPOs at the same time as institutional investors. Allowing this might potentially drive-up share prices and therefore boost UK valuations.

Also, creating a central research platform for retail investors, as suggested in the Kent Review, would leave investors better informed about and more willing to invest in domestic companies. This would be particularly helpful for smaller companies that don’t receive a lot of analyst coverage.

As well as encouraging UK retail investors to take a more active role in markets, there is also potential to make the general UK business environment more attractive, particularly to foreign firms.

While it may be tricky, politically speaking, reducing corporation tax would send out a signal that the UK is open for business.

Currently, the tax burden on smaller companies is relatively high. Reducing the headline rate, or cutting national insurance for smaller businesses would free up cash for investing in growth. So too would extending capital allowances.

The Treasury might also want to introduce tax reliefs aimed at making equity financing more attractive than debt financing.

Let’s not forget that London is still one of the world’s pre-eminent global financial centres. But clearly, we need to remain forward looking and progressive, in terms of regulation and taxation, if we want it to remain that way.

That’s why it’s important we look at ways to ensure the UK is as attractive as a listing destination as possible and that we ensure we have the capability to produce the mega-caps of tomorrow.

The good news is that there is plenty of good work underway. But with some targeted government and regulatory support, as outlined above, London will once again become a magnet for new IPOs. EQ has the skills, knowledge and experience to help them along every leg of that journey.

Over to you, Mr Chancellor. 

Insights from Robin Walker - Director of Business Development at EQ

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