Penalise startups that list abroad after receiving state aid, urges UK Finance

The British banking sector has called for the next government to penalise startups that accept state aid and subsequently list abroad.

UK Finance, in a recent paper, suggested that subsidies and tax breaks should be reclaimed if companies do not demonstrate a “two-way commitment” to the UK.

UK Finance’s paper, co-authored with the consultancy Global Counsel, proposes that businesses receiving government support should be required to maintain their listing on UK stock exchanges or face repayment obligations. This recommendation comes amidst growing concerns over the number of startups choosing foreign exchanges over London.

For several years, British business leaders have voiced concerns about the decline of London’s stock market compared to other global exchanges, particularly in the US. The departures of major companies such as CRH, Flutter, and Ferguson have underscored these worries. Notably, the high-profile decision by Cambridge-based chip designer Arm to list in New York, despite lobbying efforts from Prime Minister Rishi Sunak, was a significant blow.

UK Finance suggests that linking government support to a commitment to remain in the UK could help curb this trend. The paper states, “The government should also consider ways in which an expanded set of taxpayer-funded supports for early-stage growth companies involve a two-way commitment and would become repayable in part or full if a recipient ultimately chooses to list, or move valuable operations, outside the UK.”

Various remedies have been proposed to address the perceived exodus of companies. Last year, the Financial Conduct Authority introduced extensive reforms to make it easier for startup founders to retain control, similar to practices in the US. Julia Hoggett, chief executive of the London Stock Exchange (LSE), highlighted that UK companies face a disadvantage as British asset managers often oppose larger, US-style remuneration packages.

Conor Lawlor, managing director for capital markets and wholesale policy at UK Finance, stated, “We want to see UK companies grow and be hugely successful. We also want to bolster our capital markets and the number of companies that choose to list on UK markets. Our aim is to make the UK as attractive a destination as possible.”

Additionally, UK Finance proposed tapering government support for startups rather than abruptly ending it when companies reach a certain size. They also suggested that making it easier for pension funds to invest in unlisted UK companies could provide significant benefits.

Data from the LSE shows a marked decline in the number of companies listed on London’s main market, from 2,101 in 2003 to 1,022 today, underscoring the urgency of addressing this issue.