UK Finance, the British banking association, argues that the next British government should take measures to penalize start-ups that receive state support and later move abroad or transfer valuable business activities overseas.
A reclaim of tax exemptions or other incentives from British companies listing abroad would be a significant escalation in efforts to stop the outflow of companies going public outside the United Kingdom, particularly in the USA.
In a paper released this week, UK Finance stated: "The government should explore ways in which an extended range of tax-funded support measures for high-growth early-stage companies could include a two-sided commitment and become partially or fully repayable if a recipient ultimately decides to list outside of the United Kingdom or relocate valuable business activities.
The choice of stock exchange is a matter for each company, but "there are strong arguments for tying taxpayer-funded support to future obligations to use public markets in the United Kingdom and conduct business in the United Kingdom," UK Finance added in the paper, which was written in collaboration with Global Counsel, the consulting group founded by former Labour Minister Lord Peter Mandelson.
The proposal met criticism from the Startup Coalition, which represents technology companies. "This is not only a stupid idea, but also a dangerous one," said Dom Hallas, managing director of the group. "If our much-praised financial services sector wants to understand why many innovative companies do not see their future in a stock market listing in the United Kingdom, they should better take a look in the mirror.
Most efforts in recent years to revive British capital markets have focused on making the country more attractive by reducing regulatory requirements, including an overhaul of stock listing rules and increasing the capital invested in British companies by domestic pension funds.
UK Finance also called for more generous government support for high-growth companies and the extension of existing financing schemes to regulated fintech companies.
The United Kingdom has experienced a steady outflow of its start-ups to New York, whether through initial public offerings, acquisitions by foreign companies, or reliance on foreign investors for growth financing. This has raised concerns that Britain is becoming an "incubator economy.
Both the Conservative and Labour parties have essentially supported the demands of the London Stock Exchange and City executives to stop this phenomenon, which over time could lead to job losses, the migration of intellectual property, and other business areas out of the United Kingdom.
So far, the proposals have mainly focused on creating a positive incentive for companies to expand or list in the United Kingdom, rather than punishing those that leave.
Conor Lawlor, Managing Director at UK Finance, told the Financial Times that other countries, including the USA and France, are "much more interventionist" in their support and maintenance of domestic companies.
The United Kingdom should consider following this example and introducing 'tax penalties' for companies that benefit from government support and then leave the country within a period of five to seven years, he said.
An investigation needs to be continued into how much government support was accepted by companies that subsequently listed abroad within this period, he added. Any intervention must be designed in such a way that it does not constitute "overreach," which might prompt companies to bypass the United Kingdom entirely and start their life in the USA, he added.
