Abrdn calls on government to scrap stamp duty on FTSE 250 shares

Abrdn is calling for the immediate abolition of stamp duty on FTSE 250 shares.

It is also urging the government to bring in other urgent measures to protect and support listed smaller companies.

This call to action comes in response to the publication of ‘The Future of Smaller Company Capital Markets in the UK’ report.

The report, published by New Financial in partnership with Abrdn, Euroclear, Winterflood and the Quoted Companies Alliance (QCA), uncovered a crisis facing this segment of the UK stock market.

It found that over the past 20 years, the number of smaller listed companies with a market capitalisation of less than £1bn has fallen by nearly a third (31%).

Also, in seven of the past 10 years, more listed smaller companies have left the UK stock market than have joined it.

Additionally, only one Local Government Pension Scheme (LGPS) has a specific allocation to UK smaller companies, compared with 18 back in 2013.

This is despite UK smaller companies delivering “stellar” returns over the long-term and adding “significant” value to the UK economy.

Over 25 years, UK smaller companies, including the Alternative Investment Market (AIM), have generated an annualised total return of 7.4% in line with the S&P 500 (7.5%) and nearly 50% higher than the wider UK market (5.4%).

Despite recent volatility in AIM stocks, Abrdn said it recognises the “crucial social and economic value they bring to the UK, as well as the valuable role they can play in diversified investment portfolios”.

It would also like to see the Mansion House Compact – in which major pension providers pledged to increase allocations to private markets, including private equity and venture capital – extended to include listed small caps in the UK.

Abrdn believes the stamp duty exemption that currently exists for AIM should be extended to all listed companies outside the FTSE 100.

However, it believes that stamp duty on UK shares should be scrapped entirely.

It also feels that measures to boost investment in the UK more generally is needed and would like to see:

• Minimum pension contributions via auto-enrolment go up significantly.
• Simplification of the UK’s cumbersome Isa system to make it easier for people to engage and start investing.
• A national campaign to get the UK investing.
• A shake-up of financial education in schools so more people get access to it, creating the next generation of savers and investors.

Abrdn chairperson Sir Douglas Flint said: “Smaller listed companies are an integral part of the UK economy. They drive innovation and generate wealth and jobs across almost every corner of the country.

“Given that the government is serious about boosting UK growth, we must look carefully at the small-cap sector and the findings and recommendations of this report.

“If policymakers consider what can be done to boost investment in the UK generally, we cannot afford to ignore UK small caps. This segment of the market is flourishing in many respects, and, with appropriate action, it could be even more successful.”

New Financial founder and managing director William Wright added: “Our report argues that UK smaller companies are facing an almost existential threat.

“There are many factors behind the decline but the collapse in demand from UK pension funds – which have increasingly switched to globalised portfolios – and the decline in demand from retail investors has been the main driver.

“Regulation, liquidity and a low-risk investment culture have also played a role. The report calls for urgent action to support this vital segment of the UK market in the context of wider capital markets reform.”