AIM’s future could be in doubt if business relief (BR) is removed from shares listed on the junior market in next month's Budget, the head of the London Stock Exchange Group PLC (LSE:LSEG) has warned.
In a letter to City Minister Tulip Siddiq, seen by Sky News, Julia Hoggett warned that given the fragility of the small company sector at the moment, removing a core source of capital would undermine the market's capital base, bringing its viability into question over the short to medium term.
Business Relief, which allows investments in qualifying assets such as AIM-listed shares to be passed on without inheritance tax, is being widely touted as one of the main targets for Chancellor Rachel Reeves as she looks to raise money to fund a new round of public spending.
Hoggett wrote: "An announcement of the removal of BR in the budget is likely to result in significant market volatility as individual investors and IHT funds seek to liquidate holdings in companies that have been long-term beneficiaries of BR investment.
"Given the illiquid nature of smaller companies, we are concerned that this volatility would have a disproportionate impact on share prices across the market."
The number of companies listed on AIM has been shrinking steadily in recent years as companies have struggled to raise finance with around 704 companies valued at approximately £76bn now the junior exchange.
"Given the concerted effort being made to improve the funding environment in the UK including the development of PISCES, we are genuinely concerned that the removal of BR and its direct impact on growth markets such as AIM would create a very negative perception about the government's commitment to this agenda," Hoggett added.
AIM’s problems have reflected wider issues with the LSE with many companies deciding either to list abroad or shift their quote away from the City.
According to Hoggett, companies listed on AIM last year contributed £35.7bn gross value added to UK GDP and supported more than 410,000 jobs.
Indirectly, they support a further 212,000 jobs and £18.6bn of value created, she added.
"The package of fiscal incentives including EIS, VCT and BR are designed to address long-standing market failures to ensure companies can transition to the public market, raise capital, scale and stay in the UK," said the letter.
"Without these measures, investors would likely concentrate their investments in larger, more liquid companies, denying growth companies access to risk equity capital through the public markets."
More than 660 AIM-listed companies with a combined market capitalisation of about £73bn were eligible for business relief.
"The availability of BR has been one of the few constant features of AIM.”