We responded to BEIS's Green Paper - Building our Industrial Strategy and welcomed the prime minister's vision to create “the conditions where successful businesses can emerge and grow”.
We noted that three factors were constraining small and mid-size quoted companies from making longer term investment decisions:
- The short-term time horizons of investors and their clients - Pressure to achieve growth forecasts and deliver immediate returns for investors limits small and mid-size quoted companies from making strategic long-term investments that could yield much greater returns on investment over a five to ten year time span.
- A fiscal structure that encourages short-term thinking and inhibits the raising of long-term capital - We noted that the OECD had found that in most OECD countries more stock market financing generates a positive growth effect, yet, at the same time, effective average tax rates on equity finance generally exceeded those on debt finance.
We noted that areas of UK tax legislation impose a disproportionate compliance burden on small and mid-size quoted companies. We encouraged a simpler and reliable tax system, noting that our Proposals for Taxation Reform for the 2017 Budget outlined ways in which the Government can reduce these burdens and enhance the growth potential of Britain's quoted companies.
In particular, we highlighted how the EIS and VCT rules should be refined and simplified to ensure that small and mid-size quoted companies are able to fully leverage venture capital schemes and thus raise the finance they need to grow and create employment. We encouraged the rules to be adjusted so that all growing companies, regardless of their age could take advantage of venture capital schemes, such as EIS and VCT.
We encouraged the Government to increase the amount of resources dedicated to the Small Companies Enterprise Centre to reduce complexity and bring down timescales, so that the service allows the venture capital schemes to achieve the objective of supporting small, growing companies.
- A lack of long-term structures through good corporate governance - We commented that the QCA Corporate Governance Code for Small and Mid-Size Quoted Companies, in place for over twenty years, enables quoted companies at different stages of development and of different sizes to adopt good corporate governance practices.
Regarding the barriers facing companies looking to scale-up and achieve greater growth, we commented that existing assumptions about how markets operate should be explored and tested. We encouraged the Government to think "small first", when considering new regulatory and administrative requirements. We also proposed expanding the FCA's objective to both overseeing the good operation of financial markets and delivering ongoing growth and productivity improvement in the UK.
We suggested that all aspects of a public listing should be reassessed, including the current model of "one share, one vote”, noting that Swedish markets had both a high level of IPOs and a significant number of companies that have some form of variable voting rights structure in 2016.
We commented that labour markets should be kept open, noting that creation of intellectual property depends on people as a key resource; curtailing the free movement of people from the European Union would create an additional barrier putting UK growth companies at a clear competitive disadvantage and go against the Government’s efforts to boost growth and productivity.
Click here to download our response (pdf)