Someone at the London Stock Exchange's Alternative Investment Market must have been owed a favour by the Chancellor.
George Osborne threw Aim, the junior market for smaller companies, two separate lifelines in his Budget: the abolition of stamp duty on all Aim transactions, and confirmation that Aim-listed stocks will almost certainly become eligible for inclusion in tax-free individual savings accounts (Isas) from next April onwards.
Few people would argue against help for markets that support smaller companies in the current environment, and Aim is getting its fair share – it already benefits from favourable capital gains tax and inheritance tax regimes. But Aim is far less supportive than you might imagine of the growing businesses Mr Osborne hopes will pull the UK out of recession. In an environment where resources are short, this is a remarkably unfocused policy – listed UK smaller companies in growth sectors will benefit, but so too will everyone from rare earths producers in China to US toy makers.
Aim is certainly in need of some assistance. Just under 1,100 companies are listed there, down from almost 1,700 in 2007. Fund-raisings have fallen off a cliff – last year, companies joining Aim raised £2.9bn, against £16.2bn in 2007. Performance has been lousy, too – in the year to the end of February, the FTSE Aim Index fell more than 10 per cent while the FTSE All Share gained 10 per cent.
Aim's decline has damaged the once-buoyant broking sector in the City of London. Starved of IPO activity on which to advise – and battling for a dwindling number of companies to offer corporate services – a string of small and mid-cap broker has collapsed or been forced to consolidate and merge. New listings and fund-raising on Aim have totalled about £390m since the start of 2013, which is 20 per cent down on the first two months of 2012.
The question is what does the Chancellor hope to achieve through his generosity to Aim? If his objective is to restore the market's fortunes, he may be making the right moves – Aim advisers were delighted by the stamp duty announcement. But if he sees Aim as a main plank of his strategy to boost investment in growing businesses in the UK, this is a scattergun approach.Aim these days is less focused on the UK.
Its own statistics suggest about 20 per cent of its constituents – 227 of 1,094 companies – are international, up from 10 per cent a decade ago. A closer look suggests the practical reality is even less British – Aim specialist Allenby Capital says 30 per cent of constituents are incorporated outside the UK while more than 40 per cent have their main operations overseas.
Listings so far in 2013 suggest this trend is only going in one direction. Of nine companies making their debut Aim since the turn of the year, two came from the UK. IPOs have ranged from a Congolese potash miner to an Israeli communications specialist.
The international nature of Aim is not necessarily a bad thing, though there have long been suggestions light-touch regulation has encouraged businesses with less than glowing standards of governance to list in London. But we shouldn't think that a revitalised Aim would represent a situation in which UK smaller companies were raising more equity from a wider range of investors.
Support of Aim, may well represent support for high-growth businesses – but that's not to say UK high-growth businesses are going to benefit.
Fresh blow to schemes to give funds to tiddlers
New figures show the total value of loans offered to small and medium-sized enterprises under the Government's Enterprise Finance Guarantee Scheme fell by 26 per cent in the final quarter of 2013. EFG loans totalled just £70.7m, a 9.1 per cent decline on the same period of 2011.
Introduced in 2009, the EFG sees the Government guarantee 75 per cent of loans made to smaller businesses.
Philip White, chief executive of Syscap, a finance provider to SMEs, said the decline was particularly disappointing, given a similar failure from the Funding for Lending initiative, the Government's flagship plan for boosting the credit supply to smaller firms.