Science Superpower
The UK’s capital markets are in trouble. Last year 76 firms delisted from AIM, London’s growth market. Scores of leaders of the UK’s most vibrant companies have publicly stated that they would not consider listing on London’s exchanges. Low liquidity, diminished investor confidence, and a shrinking pool of capital available are compounding the exodus.
Capital Issues, Onward’s report produced jointly with the Tony Blair Institute, argues that the UK’s markets are “not fit for purpose” and could extinguish Britain’s potential to be the home of the next wave of world-leading science and tech companies, hindering growth prospects for decades to come.
London’s challenges are poorly understood. The traditional tale that the decline is driven by too little being invested in the UK’s biggest companies causing share price discounts is too simplistic. Unlike the US, the UK suffers from a lack of newly listed public companies, meaning the FTSE is dependent on legacy firms such as those in financial services and natural resources that do not have the growth potential of the technology sector.
Smaller, innovative companies that could become future FTSE heavyweights, struggle to access sufficient capital on the UK’s markets. Small investment funds, which tend to invest more heavily in smaller firms than larger funds, are in decline. The proportion of the UK market accounted for by small investment funds has more than halved over the past 15 years. Their decline has been driven by over regulation, including Anti-Money Laundering, the 2020 Stewardship Code and the Senior Managers and Certification Regime. The growth of passive investment also restricts capital available to smaller firms.
Low liquidity and insufficient professional analyst coverage are making small and medium-sized listed companies unattractive investment propositions, particularly on the underperforming AIM market. UK defined benefit pensions are not only investing less in public markets but are also withdrawing from equity funds, reducing participants and capital in new, innovative firms.
Bold reform is required for the UK to remain a top financial centre, support the leading companies of the future and drive stronger growth. The potential prize is huge. Europe now has over 250 start-ups generating $100-500 million in revenue, almost half of which are UK-based. If London plays its cards right, it can become the place of choice for this next generation of scaling European tech companies, while providing a platform and financing pathway for the UK’s first trillion-dollar tech company.
Recommendation 1: Close down AIM and create a rapid route to listing on the LSE Main Market with similar, but time-limited, tax and regulatory benefits.
Recommendation 2: Design the Private Intermittent Securities and Capital Exchange System (PISCES) to support pre-IPO companies.
Recommendation 3: Increase the competitiveness of the UK market for secondary listings of innovative companies by streamlining the process and improving their access to capital.
Recommendation 4: Reform the Corporate Governance Code to address the behaviour of proxy advisors.
Recommendation 5: Create a “Growth Capital Fund” with £1 billion to support the establishment of five large-scale growth investors for science and technology firms.
Recommendation 6: Scale up science and technology-focused equity analysts.
Recommendation 7: Reform the UK’s regulatory environment for asset managers.
Recommendation 1: Close down AIM and create a rapid route to listing on the LSE Main Market with similar, but time-limited, tax and regulatory benefits.
Recommendation 2: Design the Private Intermittent Securities and Capital Exchange System (PISCES) to support pre-IPO companies.
Recommendation 3: Increase the competitiveness of the UK market for secondary listings of innovative companies by streamlining the process and improving their access to capital.
Recommendation 4: Reform the Corporate Governance Code to address the behaviour of proxy advisors.
Recommendation 5: Create a “Growth Capital Fund” with £1 billion to support the establishment of five large-scale growth investors for science and technology firms.
Recommendation 6: Scale up science and technology-focused equity analysts.
Recommendation 7: Reform the UK’s regulatory environment for asset managers.
Zachary Spiro, Onward Policy Fellow, said: “The UK’s ability to finance growing tech companies is in trouble, but decline isn’t inevitable. Ahead of the new Government’s first Budget later this month, the recommendations of this report show how to boost the tech sector, revitalise the UK’s capital markets, and support growth and innovation across the UK’s economy.”
Benedict Macon-Cooney, Chief Policy Strategist at The Tony Blair Institute, said: “This week the Government will welcome global business leaders to London. It will be a test of our future prospects. Britain’s competitiveness has fallen and we are no longer the financial powerhouse we once were. Incrementalism will not suffice. If we are to reclaim our throne we need bold reform to attract the best and brightest, build the next generation of superstar companies, and make us an economic power in the modern world. This transformation is not just about saving the LSE – it’s about securing the long-term prosperity of the UK.”
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