London's capital markets are experiencing a significant downturn, marked by a structural rather than cyclical decline in IPOs. This year has seen only 7 IPOs in London, a stark contrast to 231 in the US. This trend has pushed fund managers towards private assets and international equities, leading to a shrinking domestic pool of investable stocks. This creates a self-reinforcing cycle of fewer IPOs, reduced investor choice, and weaker market liquidity.
While much of the debate has centered on supply-side solutions like stamp duty and capital gains tax adjustments, a critical demand-side component has been largely overlooked: employee equity. Proponents argue that employee share plans, often dismissed as mere HR perks, can function as a significant capital markets policy at scale. This approach could broaden the retail investor base, with employees becoming active market participants upon IPO, thereby generating liquidity and stabilizing share prices.
Furthermore, employee ownership can help anchor companies in the UK, making them less likely to seek listings overseas or pursue trade sales. New shares issued to satisfy equity awards would introduce fresh capital into companies, and firms with high levels of employee ownership tend to exhibit stronger governance, stability, and resilience. To facilitate this, measures such as enhanced capital gains tax relief (14% BADR-style) for employee equity gains in LSE-listed companies, structured regulatory frameworks for pre-IPO secondary sales, and stamp duty exemptions for employee share acquisitions are proposed.
