King’s Speech (4th Day)

Lord Sarfraz Excerpts

Monday 22nd July 2024 Lords Chamber

[Lord Sarfraz (Con)]

My Lords, I congratulate the Minister and my noble friend Lord Petitgas on their excellent maiden speeches. Both played an incredible role in government over the last few years. I welcome the Government’s economic growth strategy and wish the Front Bench the very best in their new roles.

As noble Lords will know, SMEs are our economic backbone; 99% of our businesses in this country are SMEs, and 60% of our private sector workforce are employed by SMEs. A lot of very exciting innovation happens in SMEs across the country, not just in the R&D labs of big companies. However, SMEs need cash to continue to grow and innovate.

One way in which SMEs have accessed cash in this country is through the Alternative Investment Market, to which the noble Lord, Lord Lee of Trafford, who is not in his place right now, referred. AIM has been admired around the world since its launch 30 years ago. Many countries have tried to replicate it, with some success, but they have not been able to nail what AIM was able to do over the past 30 years in this country. It is a fascinating concept for providing a public market with a deep pool of capital investors access to growth companies. There are a whole bunch of very successful stories that have come out of AIM, which have grown to be big, multi-billion-dollar businesses with tens of thousands of employees all around the world.

AIM is one key indicator of the overall health of the SME system, but the market is now struggling. It has been in gradual decline over several years. Twenty years ago, there were 1,700 companies listed on AIM; today that number is just over 700. Companies are de-listing—80 left just last year—and fewer companies are going public. There are fewer brokers and investors, with less liquidity in the market. It is expensive to go public and stay public. Valuations are much lower than in other exchanges—and then there is the issue of zombie companies, which can raise a few hundred thousand pounds a year to keep the lights on but cannot do much else.

Interestingly, this decline is uncorrelated to stock market volatility in general; it is unique and structural to AIM. It is clear that the market needs love and attention; we need to breathe life into it, and we need to do it now. It may have been a unique SME platform when it started, but is it fit for purpose for the next 20 years? I hope that the Government will evaluate how we can continue to provide deep pools of institutional capital and access to innovative companies and what role AIM might play in that—and the market is a problem for the whole country, not just for the City of London.

One practical step that the Government can take is to mandate the new national wealth fund, the British Business Bank and others, to invest in AIM companies as part of the larger strategy. That will help to crowd in capital. If the wealth fund has confidence in AIM, others will too. But to truly transform AIM, it will need a total reset, not incremental improvements. It will take effort, but there is absolutely no doubt that it is worth having a vibrant capital market for young, promising companies.