In ambitious new budget plan, U.K. courts SPACs and more stock market listings

If you’ve got a SPAC, a special purpose acquisition company, the U.K. wants your business.

Britain is looking to become Europe’s preferred destination for SPAC-related deals, a move, it hopes, will lead to a surge in stock market listings.

A much anticipated review of listings, released alongside the government’s spending-heavy 2021 budget on Wednesday, urged removing barriers that SPACs face in the U.K.

“The bottom line from a competitive point of view is, however, clear: There is a real danger that the perception that the U.K. is not a viable location to list a SPAC is leading U.K. companies, notably fast-growing tech companies, to seek a U.S.—or indeed EU—de-SPAC route for financing, rather than a transaction resulting in a London listing,” the review from former EU commissioner Jonathan Hill found. “De-SPAC” is a reference to the final stage before a private company with ambitions to go public merges with a blank-check publicly traded SPAC.

The review recommends revising the rules on trading suspensions, which are likely to affect SPACs when they announce potential acquisitions. It also called for “additional protections for shareholders at the time of the acquisition, such as a shareholder vote and redemption rights.”

The SPAC market in the U.S. currently dwarfs its U.K. equivalent. The review noted that 248 SPAC vehicles were listed in the U.S. in 2020, raising about £63.5 billion ($88.8 billion). During the same period, there were only four SPAC listings in the U.K., raising just £30 million.

SPACs, sometimes called blank-check companies, offer a quicker way to a public listing compared with the traditional IPO route. For the issuer, it also promises looser listing rules. SPAC listings outnumber conventional IPOs by a wide margin these days, and the U.K. hopes it can win a bigger share of that pie.

The U.K.’s finance sector is also facing stiff competition from the EU. Amsterdam has recently replaced London as the largest share-trading center in Europe. The U.K. fell out of the EU on Jan. 1, having reached a trade-in-goods deal with the bloc on Christmas Eve. Agreements on the financial sector still need to be hammered out.

Rishi Sunak, chancellor of the Exchequer, announced a budget full of measures to help shore up an economy dented by the COVID-19 pandemic, with £65 billion in additional support.

“Additional support that he cited in the speech is right at the top end of expectations and increases the odds of the economy opening up strongly,” said David Owen, an economist at Jefferies.

An epic collapse

In 2020, the U.K. suffered its biggest fall in economic activity in over 300 years, but narrowly avoided a double dip recession after economic activity rose slightly in the last quarter of 2020.

The government forecasts that the economy will grow by 4% this year and by 7.3% in 2022, following last year’s near 10% fall.

In a well-flagged but nevertheless surprising move, Sunak announced a rise in corporation taxes, taking the rate to 23% in 2023 from 19% at present. He added that the higher rate will only affect bigger, more profitable companies, while smaller businesses will be protected.

To encourage investment in new equipment, the U.K. is ringing in a new “super-deduction” to cut companies’ tax bills by 25 pence for every pound invested in new equipment.

“This is worth around £25 billion to U.K. companies over the two-year period the super-deduction will be in full effect,” the Treasury said.

Over the coming financial year, the U.K. is expected to tap the green bond market, which is hugely popular with environmental funds, as well as more traditional investors, and has been attracting a queue of government issuers. Funds raised will be ring-fenced for green projects.

The U.K. plans to deliver £15 billion worth of green deals over the coming fiscal year to help finance critical projects tackling climate change and other environmental challenges; fund important infrastructure investment; and create green jobs across the country. There was little detail on which areas of the green economy the country is looking to exploit.