AT THE dawn of a New Year, one bright spot across the gloom of the economic horizon remains Britain’s army of entrepreneurs – those remarkable men and women who have the drive and passion to launch and run their own business.
For it is these often family-owned ventures – the small and medium enterprises (SME) – which provide the most immediately credible means of helping revive the UK economy.
Without successful SMEs, there will be no corporate giants of tomorrow. Without the growth of fledgling companies, there will be little meaningful job creation. Opportunities for newly fledged graduates, for example, are not going to come from the FTSE 100 companies.
Consider the numbers. It is obviously far more realistic for each of the 4.8m SMEs in the UK to create an additional job than it is for each of the FTSE 100 to generate another 48,000 posts apiece – that is highly unlikely to happen anytime soon.
We must look to the government to oil the wheels of policy changes to expedite this process. And from the London Stock Exchange’s participation in the debate over the future of SMEs, I am in no doubt that this issue is regarded as a priority.
But as a pivotal part of the UK’s financial community, the London Stock Exchange Group (LSEG) must also take proper responsibility for doing everything it can to nurture the SMEs’ role as the driving force behind national wealth creation.
At the heart of this debate, I believe, is the need for re-equitisation of the SME funding environment, to look at how to maximise the best opportunities for small companies across seed capital, business angels to venture capital and the public markets. This process will only work, if at every stage each investor is confident that they have a means of selling their investment and reinvest in the next generation of entrepreneurs, thereby perpetuating the process.
And through the re-equitisation process, wean the SME sector off an over-reliance on bank finance, with equity playing a far more significant role. Imagine how attractive a prospect that is to hard-pressed business owners.
If this is to be achieved, there is no doubt there will be need for changes to the tax treatment of equity finance. Equities, of course, are taxed at purchase, dividend and sale, in addition to corporation tax paid on company profits. By contrast asset classes such as bonds and cash are subject only to income tax. Reducing tax on capital gains made from investment in smaller companies would, we believe, help pull in more investors. As would the abolishment of stamp duty for Aim-quoted shares.
But the London Stock Exchange Group’s role in this debate will be judged here more by its actions not its words. And re-engineering the London Stock Exchange to ensure its relevance to both issuers and investors as well as underpinning the City of London as a central player in the world’s capital markets remains a key and strategic priority.
This is why we hope that our transaction with LCH.Clearnet is successful, enabling us to create a new global leader in financial infrastructure firmly rooted in London, with centres of expertise in Paris and Milan. This will further expand the LSE’s customer partnership model, so that operations and services for all product trading and clearing is driven by the needs of our customers.
And SMEs are a core part of our customer base. We’ve had 17 years of success with Aim, the public market nursery for growth-orientated companies. Launched 17 years ago, Aim has brought more than 3,200 companies to market, pump-priming them with equity capital. As a result, according to a recent Grant Thornton study, UK Aim companies contributed £12bn to UK GDP, supporting 250,000 jobs. When we take into account the supply chain and the multiplier effects, they contributed a further £9bn and an additional 320,000 workforce.
Not to mention the contribution to Britain’s knowledge economy and the importance of this sector to reinforcing the nation’s lead in innovative growth areas such as the three tech sectors – high, clean and bio – in which the UK has a global leadership.
Our pioneering move to boost UK corporate access to fixed income finance is gathering momentum too. In 2009, we launched our Order book for Retail Bonds (ORB), the UK’s first retail accessible bond market which has grown into a new pool of finance opportunities for UK businesses, both large and small.
For the first time, companies can issue small tranches of corporate debt, trading them to both institutional and retail investors on a fully regulated, cost effective and transparent electronic market.
There will be more initiatives to come. All of us in the financial markets and government must do what we can for the SMEs, creating the best environment to grow the blue chips of tomorrow. For the sake of the UK economy.
Xavier Rolet is chief executive officer of the London Stock Exchange Group.