London Stock Exchange chairman Don Cruickshank today renewed his increasingly hopeless campaign for the abolition of the turnover tax – known as stamp duty – on UK share transactions ahead of the national budget on 8 April.
In its Budget submission to Chancellor of the Exchequer Gordon Brown, the Exchange called for full abolition of stamp duty on all UK equity transactions. It argued stamp duty was having a serious detrimental impact on financial markets and the wider economy.
The Exchange argued that, if the Chancellor were unwilling to fully abolish the tax at this stage, he should demonstrate a credible commitment to a phased abolition with an immediate reduction in the rate at which it is applied. This would send a clear signal to companies and investors that they do not need to account for this tax in their long-term planning, and would deliver two thirds of the likely benefits immediately.
In addition, the Exchange urged the Chancellor to abolish Stamp Duty on in-kind creation of Exchange Traded Funds and on European ETFs where they are moved into CREST, and on transactions resulting from the expiry of OTC equity options. If Stamp Duty was retained in these cases, argued the Exchange, innovation would be halted and business deterred. It added that both steps would be “broadly revenue-neutral.”
The only reason for hope, given the hostility of the current New Labour Government to the financial services industry in general, is the declining value of the ad valorem tax. The latest Treasury figures show that revenues from the tax are likely to fall by over half from 4.5 billion in 2001 to 2.2 billion in the next tax year. Last year, the Exchange predicted that the total tax take from stamp duty was unsustainable.
“Now more than ever, urgent action is needed on stamp duty, a tax unique in its distorting effect, which acts as a serious drag on both our markets and our economy,” says Don Cruickshank, the chairman of the Exchange. “The UK’s leadership in financial services in Europe is currently at stake as we step up to the challenges of the Financial Services Action Plan. It is difficult to promote the UK’s competitiveness when stamp duty has such a stultifying impact on, amongst other things, new secondary market products. For example, why is it that Europe’s leading index – the FTSE 100 – cannot produce an Exchange Traded Fund which is in the global top 20 or better than seventh place in Europe? The evidence points towards this being caused by the imposition of stamp duty on what is supposedly a stamp duty-free product.”
Over the last two years, the Exchange has repeatedly made the case for abolition of stamp duty without any effect – though governments have hinted at its abolition since the mid-1980s. The Exchange argues from its own research that abolition of stamp duty would lead to a reduction in the cost of capital for UK companies of 80 basis points from a current average of 12.5 per cent; boost investment by around 3 billion a year; and remove the “bizarre and embarrassing fact” that the tax discriminates in favour of non-UK companies. It points out that the United States, Australia, Japan, Switzerland and even China have all taken action to reduce or abolish their own turnover taxes. In a claim designed to appeal to the beleaguered UK pension industry, the Exchange adds that the removal of stamp duty would also raise the value of company pension schemes by up to 8,000 over the lifetime of a plan (93 per year).