By Daniel Hunter
Research among small and mid-cap companies reveals that the Government appears to be wasting vital opportunities to increase confidence among investors and thus expedite growth.
The latest QCA/BDO Small & Mid-Cap Sentiment Index - a joint initiative from accountants and business advisors BDO LLP and the Quoted Companies Alliance (QCA), the independent membership organisation for the UK’s small and mid-cap quoted companies — reveals that small and mid-cap companies are calling for a raft of reforms, particularly that AIM and PLUS-quoted shares be included in ISAs.
This move would provide incentives to shareholders to adopt a longer-term approach to investment, and boost trading and investment in small and mid-cap shares, thereby stimulating growth and increasing levels of confidence around the ongoing availability of finance.
The vast majority (85%) of small and mid-cap companies believe the inclusion of AIM and PLUS-quoted shares in ISAs would have a positive impact on their business, and a quarter (28%) see it as the single biggest change that would benefit them. Looking ahead to the Chancellor’s Budget, the Index reveals that this is the most sought-after measure that small and mid-cap companies would like to see implemented by the Government on 21st March.
However, the Government refuses to introduce the measure, with the Treasury last month again rejecting the proposed reform. This rebuttal indicates how this key group’s calls for change are going unheeded by policymakers.
“The forthcoming Chancellor’s Budget is an opportunity for reform to help small and mid-cap companies," Scott Knight, Partner, BDO LLP, explained.
"But the early signs are that policymakers are engaged in rhetoric — asking questions and not listening to the answers. This leaves small and mid-cap companies hamstrung by a one-size-fits-all approach that hinders their growth prospects and hampers investment; not what businesses in the UK need at the moment. The needs of small and mid-cap companies differ from those of large businesses and the Government must recognise as much in the upcoming Chancellor’s Budget.”
The QCA/BDO Small & Mid-Cap Sentiment Index, carried out by YouGovStone, also points to a widespread desire for the elimination of Stamp Duty on trading AIM and PLUS-quoted company shares. More than three quarters (79%) of small and mid-cap companies and 85% of advisors to this group felt that eliminating Stamp Duty would have a positive impact on their business by stimulating investment in this sector and supporting growth.
Reforms to capital gains tax relief also ranked high on companies’ wishlist for the upcoming Budget. Extending capital gains tax relief to long-term investors and removing the qualifying shareholder percentage for Entrepreneurs’ Relief were cited as reforms to provide these small and mid-cap companies with more support from the Government whilst also improving their growth prospects.
As many as 82% of small and mid-cap quoted companies and 86% of their advisors said that extending capital gains tax relief to long-term investors that hold shares in SMEs for five years would have a positive impact on small and mid-cap companies. In addition, three quarters of advisors (74%) and over half of small and mid-cap companies (54%) said that removing the requirement to hold 5% share capital to qualify for the lower rate of capital gains tax via Entrepreneurs’ Relief would benefit their business, and improve growth prospects.
“Including AIM and PLUS-quoted company shares in ISAs, abolishing of Stamp Duty and reforming capital gains tax relief are all measures that the Quoted Companies Alliance has proposed to the Chancellor," Tim Ward, Quoted Companies Alliance CEO, said.
"They are easy to implement and overwhelmingly supported by small and mid-caps. They tie in to the much vaunted need for long-term investment and recognise the importance and potential of small and mid-cap companies as the driver of economic growth. Any further delay in stimulating growth will stall our economic recovery by several more years. Now is the time to support small and mid-cap companies as the engines of growth with a range of Budget initiatives designed to lubricate and fuel their financing and business growth plans. The Government must stop consulting and start to deliver.”
The issue of regulation and red tape, meanwhile, is equally symptomatic of the growing disconnect between the Government and small and mid-cap companies. Despite the Government’s continued promises to tackle red tape, more than three quarters (76%) of small and mid-cap quoted companies actually expect an increase in red tape over the coming year — an increase on last quarter - suggesting a growing concern among the group, which could further compromise growth prospects.
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