Rayner's irrational tax raid will suffocate Britain's most promising businesses

Telegraph

5 days ago

Thirty years ago, 10 plucky firms listed on London's new Alternative Investment Market (AIM) with a combined capitalisation of just £82m, opting for the exchange as a less burdensome and expensive means of attracting investor capital than the main market.
Since that time the average market cap of a single Aim firm has grown to £101m, more than 4,000 companies have participated in the market and raised over £135bn from investors. Firms such as ASOS, FeverTree and YouGov got their start on the index, while longstanding businesses such as Eddie Stobart, Time Out and Young's Brewery turned to it for further capital. Some have stayed on the junior market, while others made the leap to the main market.
In turn, these firms have contributed vast sums to the British economy. In 2023 alone, Aim-listed businesses directly added £35.7bn to UK GDP and employed more than 400,000 people. Factor in the indirect (supply chain) and induced (employee spending) gross value, and these companies contributed £68bn to UK GDP and supported almost 800,000 jobs.
Unlike so many other parts of our economic engine, there are more Aim companies headquartered outside of London than in it, and each employee adds £87,100 to our collective wealth, 50pc higher than the national average.
Companies grow quickly under the Aim umbrella, boosting revenue by more than 40pc per annum in their first three years and growing headcount by 17pc each year.
These businesses added £5.4bn to Treasury coffers in the same year through corporation tax, not to mention VAT, income tax or National Insurance contributions. They also paid out £1.2bn in dividends.
And yet, our Deputy Prime Minister Angela Rayner is demanding we gamble its future away for the paltry sum of a 0.01pc increase in annual tax receipts.
Despite her claims that abolishing the remaining inheritance tax relief on Aim-listed shares could raise as much as £1bn annually, itself just 0.1pc of total tax take, the Government's own figures show the best case scenario would only add £110m to the public purse.
Rather than cobbled together estimates from various interested figures, these numbers come from HMRC as per a Freedom of Information request from TWM Solicitors, and represent the projected income of Rachel Reeves's raid from her inaugural Budget, in which she halved the tax relief available.
It stands to reason that culling the remaining 50pc tax relief would raise the same sums again. Except it doesn't.
Factor in an incredibly unfriendly market environment for Aim shares, and analysis by tax firm RSM projects the number could dwindle as low as £55m. But even this is missing the wider picture.
Slash inheritance tax relief to 0pc on Aim shares and it's very likely you'll never see a penny raised from this tax.
The junior market is a risky investment, and one that only makes sense for estate planning on the basis of tax relief. Pop 'Aim portfolio' into your favourite search engine and you'll find every offering advertises the benefits of reducing one's inheritance tax bill.
This is because while the market has a wealth of success stories, its history is also littered with hundreds of failed ventures. For every moonshot that compounds tenfold, your portfolio will be weighed down by other 100pc losses.
But for British business to succeed and innovate – and generate that mystical growth at the heart of the Chancellor's proposition – we need a supportive environment and steady flow of capital.
Moreover, unlike your typical FTSE 100 company which records its revenue in dollars and does little for our own GDP, the tax relief on Aim shares is reserved for certain businesses – those that operate on our shores. To qualify for the relief, the company must carry out the majority of its business in the UK, and it can't be a glorified landlord. Firms trading in land or securities, or receiving a substantial amount of income from letting property or land, are excluded.
The relief isn't offered in perpetuity, either. Stray from these requirements and investors will be forced to pick a new stock, or face a tax bill.
For a cost of roughly £110m per year, the inheritance tax relief buoys British businesses and offers entrepreneurs the opportunity to fail or succeed – and returns £68bn. If Reeves is serious about her growth agenda, this is the time to prove it.