Clause 19 - Growth market exemption: qualifying UK multilateral trading facilities etc

Finance Bill – in a Public Bill Committee at 10:45 am on 16 January 2024.

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Question proposed, That the clause stand part of the Bill.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Clause 19 widens access to the growth market exemption—a relief from stamp duty and stamp duty reserve tax—so that it better supports SMEs and growth businesses to raise capital. It does that by lowering transaction costs, which will support our economy by boosting growth in innovative sectors. The relief will now be available to smaller, innovative growth markets, instead of being restricted to markets operated by large stock exchanges.

The growth market exemption was introduced in 2014 with the aim of boosting investor participation in equity growth markets and improving the conditions for growing companies to raise equity financing. Initially, three UK markets and one Irish market were able to access the exemption. Since then, another 10 markets across the EU and European economic area have applied for and gained access to the exemption, meaning that UK SMEs have greater access to capital.

Previously, in order to be recognised by HMRC as a qualifying growth market, markets that are referred to as “multilateral trading facilities” had to be operated by a “recognised stock exchange” such as the London or Aquis stock exchanges. Once that condition was met, markets also had to meet one of two additional conditions: either the majority of companies on the market had to have a market capitalisation of less than £170 million, or the market’s rules of admission had to require companies to demonstrate at least 20% compounded annual revenue or employment growth over the three years preceding their admission.

However, the requirements have not been updated since the exemption’s introduction in 2014, despite considerable developments in how markets are regulated. Investment firms that are not of the same size and scale as the large stock exchanges can run multilateral trading facilities that are recognised as small and medium-sized enterprise growth markets by the Financial Conduct Authority but, as a result of the current stamp taxes on shares legislation, are barred from accessing the growth market exemption.

The changes made by clause 19 allow multilateral trading facilities that are regulated by the Financial Conduct Authority and run by these smaller investment firms to access the growth market exemption, provided that they meet one of the two additional requirements. That will ensure fairness in the current application of the exemption and increased competition in the market, leading to greater choice for SMEs that are seeking to access finance. That will, in turn, boost growth in UK SMEs.

Clause 19 also updates the market capitalisation condition by increasing the level up to which a majority of companies listed on the exchange can be capitalised from £170 million to £450 million. That change reflects the modern market and demonstrates the Government’s commitment to helping innovative SMEs to grow.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

As the Minister said, clause 19 amends the qualifying criteria to increase access to the growth market exemption relief on any stamp duty or stamp duty reserve tax that is otherwise owed on trades made in UK incorporated companies. The Government have stated that these proposals will update the growth market exemption eligibility to reflect the modern market, ensuring that there is greater fairness in the application of the tax relief and giving greater choice for businesses considering where to list their shares for trading.

We in the Opposition are hugely supportive of efforts to boost our ailing capital markets and are committed to delivering a world-leading listings regime in the UK, building on recent regulatory reforms and ensuring that our scale-ups can access the equity finance they need. We are supportive of the objectives of the clause, but questions remain about what impact the changes will have in practice.

For example, it would be helpful to understand from the Minister how many additional growth markets will potentially be eligible for a stamp duty exemption due to the increase in the capitalisation threshold from £170 million to £450 million. By far and away the largest growth market the exemption applies to is the London stock exchange’s alternative investment market, which, according to the latest data, had an average market capitalisation of £126 million in the summer of 2022. Given that the largest and most established market to benefit from the exemption appears to be well under the original threshold, it remains unclear what difference the change will make. What are the Minister’s views on that?

We do not oppose clause 19, but it is a minor tweak that will not deliver the sea change in the availability of growth capital that British businesses urgently need. Does the Minister plan to do more to increase the availability of growth capital for our businesses?

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I thank the hon. Lady for her comments and questions. Any market that meets the requirements will be able to apply to HMRC to take advantage of the exemptions. The UK’s financial service industry is dynamic and innovative, so it is important that future markets are not restricted by legislation that has not been updated in almost a decade. It is also a question of fairness: it is right that smaller, innovative markets are not barred from the exemptions, for the reasons that she and I outlined. At the moment, there is one market that is likely to benefit—Archax, a digital asset market—but the point of the changes is that other markets could benefit in future and, because of the dynamism in such markets, we need to plan ahead. We cannot anticipate what may come up, so we do not want to restrict options for future growth.

Clause 19 updates the scope of the growth market exemption, reflecting changes that have taken place since its introduction back in 2014. The clause allows the exemption to meet its initial aims more effectively by ensuring fairness in its application, increasing competition, boosting liquidity and facilitating growth. I therefore commend the clause to the Committee.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.