Scrap AIM to save London’s capital markets, think tanks say

London’s junior stock exchange should be ditched, according to a new report, as part of a “radical surgery” to save the UK’s ailing capital markets.

The report by The Tony Blair Institute and centre-right think thank Onward has proposed the measure after it concluded that London’s markets are “not fit for purpose”.

The London Stock Exchange (LSE) has become “dependent on legacy firms” with limited growth potential compared to tech businesses, the report said.

AIM, the LSE’s junior market, has “failed in its stated purpose of providing a home for scaling businesses,” the authors argued, and should be fully merged with the main market.

The report suggested introducing a special route to listing specifically designed for high-growth firms in emerging technology sectors.

“Britain’s competitiveness has fallen and we are no longer the financial powerhouse we once were,” said Benedict Macon-Cooney, chief policy strategist at The Tony Blair Institute. He called for “bold reform” to revive the UK’s economic strength.

Onward policy fellow Zachary Spiro added that “decline isn’t inevitable”.

The report also recommended maintaining tax breaks for investors in junior market stocks, slashing red tape, and establishing a £1bn ‘Growth Capital Fund’ to create five large-scale growth investors focused on science and tech firms.

It comes after one top investment bank urged all of its AIM-listed clients to prepare “proactive measures,” such as leaving the exchange or announcing emergency share buybacks, ahead of the 30 October budget.

Chancellor Rachel Reeves is rumoured to be considering scrapping inheritance tax relief on AIM shares. The move could raise £1.6bn annually, according to the Institute for Fiscal Studies.

Concerns over tax hikes have already hit AIM, with UK smaller companies’ funds slumping in September. The LSE’s chief executive, Dame Julia Hoggett, has warned that the “ongoing viability” of AIM could be at risk if Reeves pushes ahead with the changes.

AIM has struggled to retain companies, with the number of listed firms dropping from a peak of 1,694 in 2007 to just 704 by the end of August 2024.