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Autumn Statement 2023: the outlook for equity capital markets

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The Chancellor has once again included an emphasis on equity investment and capital market reforms in his Autumn Statement. Samantha Harrison shares her insight on Jeremy Hunt's announcements.
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The 2023 Autumn Statement included policies intended to incrementally increase the flow of equity capital into UK growth-companies and further the Government’s ambition to make the UK a more attractive venue to grow and list companies. That being said, a public offer of shares in NatWest will be unlikely in itself to lead to a surge of retail investment into UK stock markets or re-invigorate IPOs more generally. 

Targeting long-term investment

New investment vehicles, tailored to pension schemes, have been announced which are anticipated to facilitate investment into the UK’s most innovative companies. £250 million will be provided to two successful bidders under the Long-term Investment for Technology and Science initiative (LIFTS) and will pave a route for pension funds to invest in UK science and technology companies. Additionally, a new Growth Fund will be established within the British Business Bank (BBB), building on the BBB’s track record of investing and existing +£7 billion, to provide pension schemes with access to opportunities for investing in UK growth companies. While the sums involved here aren't going to change the investment environment, they form part of a wider network of changes.

The Government plans to increase allocation of savings towards UK-growth companies built on an acknowledgement that investment by UK fund managers, pension funds, and retail investors has been shifting away both from equities in general and from UK companies. The issue which the Government and industry have identified is that the returns of savings and investments portfolios aren't high enough to meet the needs of retired people, with too much money locked into cash or the gilt/bond market with low returns.

The Mansion House Compact

You can find context for these announcements by looking back to the Chancellor's Mansion House address in July, where he said that “UK institutional investors are not investing as much in UK high-growth companies as their international counterparts. At the same time on their current trajectory, some defined contribution schemes may not provide the returns their pension fund holders expect or need.”

In the same speech, Hunt set out the Mansion House Compact where two thirds of the UK’s Defined Contribution funds have agreed to allocate at least 5% of their default funds to unlisted equities by 2030. Importantly, ‘unlisted equities’ includes AIM and AQUIS Growth Market-quoted companies. In July, and re-iterated since, Hunt said that this could unlock up to £50 billion to be invested in UK growth companies. The Chancellor now has 11 signatories to the Mansion House Compact.

No change to the ISA regime

The Chancellor didn't use the Autumn Statement to implement changes to the ISA regime to allow additional investment into UK companies (which had been a call from many industry participants), nor were there any changes to increase EIS and VCT allowances for companies. The extension of the sunset clause on EIS and VCT to 2035, allowing these schemes to continue for ten years further than currently legislated is welcome for the certainty it gives to companies and investors. These schemes have been a much-needed source of equity for UK companies and businesses.

A programme of reliefs

The announcements also included extension of the Growth Market Exemption, a relief from Stamp Duty (SD) and Stamp Duty Reserve Tax (SDRT), to include smaller, innovative growth-markets. These changes will be for implementation from 1 January 2024 and the details are to be clarified as to which exchanges could now be included (currently AIM and AQSE are the principal UK Recognised Growth Markets). Legislation will also increase the threshold for the market capitalisation condition that's used within the exemption from £170 million to £450 million broadening the opportunity to obtain the relief.

The Government's programme is broad and not without significant challenge in terms of behaviours (both individual and institutional). The steps outlined above seek to ease and incentivise equity investing into UK growth companies.

Stock exchange regulation 

The review of the UK’s stock exchange regulations for companies to make these more appealing to business owners is also ongoing. While there have been several consultations to date, the implementation process is only going to start gathering pace next year. So far, we've seen a raising of pre-emption guidance and, in response to the King’s Speech, a statement from the FRC that it will be working to support the Government’s stated ambition of making the UK the best place in the world to start, grow and invest in a business.

The regulatory rule changes for UK stock exchanges are going to start having an impact next year. While the current focus is on the ‘Official List,’ with the FCA consulting on changes for eligibility to the London flagship market, the changes to prospectus regulation will also affect AIM and AQUIS. It's likely that amendments to the Listing Rules will start in the first half of 2024, with the current Premium Listing and Standard Listing being merged. While companies with a Premium Listing are likely to see greater flexibility and reduced costs, Standard Listing companies will find their regulatory requirements raised. Included in these changes will be amendments to eligibility for listing and companies are likely to have greater flexibility over their track record (currently three years), working capital statements and the independence requirement than with the current Premium Listing.

Following this, the streamlining of the rules around prospectuses (affecting public offers) is expected to make it easier for secondary fundraises to occur and also for retail offers to be included by AIM issuers at IPO and in follow-on fundraises.

The eco-system to support and nurture companies on UK stock exchanges is going to evolve rapidly. However, the impact of the many changes in train will take time to work their way through the system.

For more insight and guidance, get in touch with Samantha Harrison

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