UK startups that benefit from taxpayer-funded support schemes should repay the state if they relocate or IPO overseas, according to a prominent City lobby group.
In its latest report, UK Finance applauded government-backed schemes that encourage more capital into startups, such as EIS and SEIS. However, the group took aim at firms that later moved operations or publicly listed overseas.
“While most UK firms that choose to participate in public markets choose to do so in the UK, there is no question that competition from overseas venues is increasing,” the report said.
UK Finance is calling for a “two-way commitment” system wherein tax-funded support would “become repayable in part or full if a recipient” lists or “moves valuable operations” out of the country.
“Where a UK company chooses to join public markets or locate is a choice for the company,” the report noted. “However, there is a strong case for linking taxpayer support to future commitments to using UK public markets and operating in the UK.”
The UK’s public markets have faced criticism over a lack of competitiveness in encouraging prominent startups to list in London, with top firms such as Arm and Imagination favouring New York.
The government has been seeking solutions to reform public markets to incentivise activity. However, there remains a perception that the US will always be more attractive due to its deeper pools of capital.
Husayn Kassai, founder of digital ID startup Onfido, which was acquired by Entrust earlier this year, has previously suggested a form of equity rebate for the taxpayer when startups backed by government support complete an IPO overseas.
Speaking on the UKTN Podcast, Kassai said: “I don’t in any way, see a world where anyone is going to prioritise listing in the UK over the US if they are able to list in the US.”
However, Dom Hallas, executive director of industry lobby group the Startup Coalition, disagrees with recouping tax-funded support in the event of an overseas exit.
“This is the dumbest policy idea I’ve seen in a very long time,” said Hallas, writing on X. “Dumb and dangerous. Why might these companies feel unwelcome on the markets asks the biggest financial services lobby in the UK?”
This is the dumbest policy idea I’ve seen in a very long time. Dumb and dangerous. Why might these companies feel unwelcome on the markets asks the biggest financial services lobby in the UK?🤔 https://t.co/iGvpyFn255 pic.twitter.com/e2FyS09cIq
— Dom Hallas (@Dom_Hallas) July 4, 2024