Tax relief on interest should be capped to curb private equity activity and give a boost to public markets such as AIM, according to broker finnCap (LON:FCAP).
The importance of public markets has been amply demonstrated during the coronavirus crisis says Stuart Andrew, finnCap’s managing director, with listed companies raising more than £10bn since the pandemic started.
It has been a distinct competitive advantage to be listed, he believes, which has highlighted the need for more be done to reverse the trend of companies leaving markets and going private.
Between 1996 and 2016, the number of listed US companies fell to 3,600 from 7,300, while share volumes generally are down with vast sums available from private equity firms.
Andrew argues that far from markets such as AIM ‘dying’, the last three months should prompt a serious rethink – both of the view of the public markets as well as how they benefit the UK economy.
Solutions suggested by Andrew include a cap on the amount of interest that is tax-deductible to level the playing field for public markets with private equity.
Interest is a tax-deductible item, he says, benefiting private equity by lowering their cost of capital and ‘allowing much higher valuations for business’ ideally suited to the public markets’.
Reduced red tape for funds, allowing them to be smaller and invest in lower value companies, and improved access to corporate research for retail investors are other suggestions.
Finally, Andrew wants the threshold to issue a prospectus when raising money to be increased to €20mln from €8mln currently.
“Post Brexit it can be denominated in £ and become a choice for the UK Government,” says Andrew.