How to revitalise aim and make London a global growth powerhouse

The challenges facing AIM, London’s junior stock market, are growing. In 2024 alone, 89 companies left AIM, with notable names such as Hornby opting for private ownership due to regulatory hurdles and listing costs. The government’s decision to introduce a 20 per cent inheritance tax on AIM-quoted shares has further discouraged investment, raising serious questions about the future of this market.

The departure of high-performing companies has diminished AIM’s headline performance. While the AIM All-Share Index has struggled, successful firms such as Jet2, Fever-Tree, and Keywords Studios demonstrate the market’s potential to nurture high-growth businesses. Strategies to restore AIM’s attractiveness could play a key role in fostering economic growth and promoting entrepreneurial ambition.

One solution could be to overhaul tax incentives. Aligning AIM investments with the tax relief available via the Enterprise Investment Scheme or venture capital trusts could encourage long-term commitment from investors. A system where tax relief increases the longer shares are held could be instrumental in building confidence among both private and institutional investors.

Adjustments to capital gains tax could also boost entrepreneur-led businesses. Raising the lifetime allowance for entrepreneurs’ relief from £1 million to £15 million for single companies would incentivise founders to float their firms in London. Extending these benefits to European entrepreneurs seeking funding through AIM would enhance its appeal as a global market hub.

Structural changes to AIM itself could further energise the market. Spinning AIM out as a standalone entity with its own governance could allow for greater flexibility and innovation. The London Stock Exchange could retain a stake while enabling other investors to share in its success. A group of stakeholders relaunching AIM as the Global Growth Exchange might provide the necessary autonomy to unlock its full potential.

Mandatory investment by UK pension funds in domestic markets could create significant liquidity for AIM. Currently, just 4.4 per cent of UK pension funds are invested domestically. Raising this to a minimum of 10 per cent would bring vital capital to undervalued companies and stimulate the broader small-cap market.

Transforming AIM into a vibrant, high-growth market akin to Nasdaq requires bold thinking. By fostering collaboration between founders, investors, and government while implementing these strategic changes, London can solidify its position as a world-class destination for entrepreneurial growth and capital investment.