In a startling development, London’s Alternative Investment Market (Aim) has shrunk to its smallest size in over two decades. According to recent data from the accountancy group UHY Hacker Young, the junior stock market now comprises a mere 695 companies – a number not seen since 2001. This dramatic decline has sent shockwaves through the financial sector, prompting urgent questions about Aim’s future and the wider implications for the UK economy.
The Spectre of Inheritance Tax Changes
At the heart of Aim’s woes lie growing fears over potential changes to inheritance tax relief in the forthcoming budget. Under current rules, shares held on the Aim market for more than two years qualify for business property relief, effectively exempting them from inheritance tax. This has long made Aim an attractive proposition for wealthy families seeking to pass on their assets tax-efficiently.
However, speculation is rife that Chancellor Rachel Reeves may be poised to abolish this relief in a bid to bolster public finances. The mere prospect of such a move has already taken a heavy toll, with 26 companies delisting from Aim since Labour’s election victory in July. As one financial expert put it, “The government needs to urgently address how it can help. Cutting IHT relief on Aim shares would do the opposite.”
A Market in Decline
The statistics paint a grim picture of Aim’s current state. In the past year alone, 92 companies have bid farewell to the exchange, while a paltry 10 have floated. The market’s value has plummeted by 6% since Labour took power, and by more than 10% since the election was called in May. In stark contrast, the blue-chip FTSE 100 index has remained largely flat over the same period.
Observers point to a confluence of factors behind Aim’s malaise. Beyond the inheritance tax fears, the market has been hit by dwindling liquidity in recent years as investors flock to passive funds tracking main market moves. Pension funds, too, have increasingly shunned smaller companies. As one wealth manager noted, “Speculation around the removal of business relief for Aim in the forthcoming budget has compounded this. Not only is this bad for business, it also harms long-term savers who are the lifeblood of private investment.”
The Economic Fallout
The ramifications of Aim’s decline extend far beyond the confines of the City. Research commissioned by the London Stock Exchange Group found that Aim companies contributed a staggering £68bn in gross value added to the UK economy last year, while paying £5.4bn in corporation tax. The market has helped over 4,000 companies raise nearly £135bn from investors since its inception in 1995.
As Aim turns 30, we should celebrate the success of companies past and present who have made such an important contribution to our economy. But it is vital that we protect the market and its structures so that companies in the future can continue to support this positive legacy of economic growth and deliver returns for investors and savers.
– Marcus Stuttard, Head of Aim and UK Primary Markets, London Stock Exchange Group
Yet with Aim’s future hanging in the balance, there are growing fears that this economic powerhouse may be critically undermined. The loss of inheritance tax relief could trigger a further wave of delistings, starving businesses of vital growth capital and depriving investors of a key source of returns. More broadly, it risks damaging the UK’s hard-won reputation as a global hub for dynamic, innovative companies.
A Plea for Support
As the budget looms, calls are growing for the government to throw Aim a lifeline. Many argue that far from abolishing inheritance tax relief, policymakers should be looking at ways to maximize incentives for companies and investors alike. Some have even suggested a radical overhaul of the market’s structures to boost liquidity and lure back pension funds and other major players.
Whatever the way forward, one thing is clear: the fate of Aim is too important to be left to chance. As a key driver of economic growth, innovation, and job creation, this once-thriving market deserves all the support it can get. The alternative – a slow, painful decline into irrelevance – is simply too high a price to pay.
Only time will tell if London’s junior stock market can recapture its former glory. But as the budget approaches, all eyes will be on Westminster – and on a Chancellor who holds Aim’s future in her hands.
