U.K. should provide tax breaks to boost London Stock Exchange, Barclays says

By Louis Goss

The U.K. should provide tax breaks to companies that switch their listing onto London's main stock exchange as a way of reviving Britain's struggling equity markets, Barclays has said in a new report.

The FTSE-100 index bank said the British government should encourage more companies to advance their listings from the U.K.'s junior markets to the main board of the London Stock Exchange by extending various tax breaks offered to firms listed on the AIM and Asquith Growth Market.

The London Stock Exchange has suffered in recent years from a series of high-profile exits and dearth of initial public offerings that has led to widespread concerns that Britain's main stock market has entered a period of decline.

In July, the U.K.'s Financial Conduct Authority overhauled the rules it uses to govern Britain's stock exchanges with a view to making the London Stock Exchange more attractive to companies seeking to float on major markets.

Now, Barclays has said the U.K. should also seek to encourage more companies to move their listings from junior markets, including the AIM and Aquis Growth Market, to the centuries old London Stock Exchange.

The bank noted in both Japan and Sweden it is much more common for companies that graduate from junior exchanges to main markets. In comparison, relatively few companies use the U.K.'s junior markets as a stepping stone onto the London Stock Exchange.

As such, Barcalys' report says the U.K. should incentivize more switching by waiving the 0.5% stamp duty tax on transactions of shares in companies listed on the London Stock Exchange, in what would lead to a 0.2% to 0.7% increase in Britain's annual gross domestic product (GDP).

The British government previously lifted stamp duty on all transactions of shares in companies listed on the AIM and Aquis Growth Market in 2014, with a view to boosting liquidity on the U.K.'s junior markets.

Barclays report says the U.K. government should also extend the tax incentives it provides to "unquoted" companies listed on Britain's junior markets, by making certain companies eligible for those tax breaks when they graduate to the London Stock Exchange.

The U.K. bank's report says this would remove the "cliff edge" currently faced by companies that switch onto Britain's main market that sees them become ineligible for capital gains tax and inheritance tax relief schemes.

Barclays report says the U.K. should also make it easier for companies to switch their listing to the London Stock Exchange by lifting requirements that they must have a prospectus if they had previously listed on a junior market in the past 18 months.

The typical company spends an average of EUR912,000 ($1 million) writing a prospectus to launch a public float, a survey by the Centre for Strategy and Evaluation Services shows.

"UK capital markets are central to the success of the UK economy - they spur innovation, business growth and job creation... Removing unnecessary frictions for high growth companies looking to graduate into main markets would drive dynamism and agility within UK capital markets," Barclays group head of strategic policy, Katharine Braddick, said.

-Louis Goss

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09-16-24 0519ET

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