Press releases 2007
2 May 2007
New research shows that ordinary savers and pensioners bear brunt of £3bn share tax
Research finds that abolition of stamp duty would benefit economy
Stamp duty on share transactions is damaging the economy, eroding pensions and savings and hitting investment according to new Oxera research released today.
“Stamp duty: its impact and the benefits of its abolition”, which has been commissioned by the Association of British Insurers (ABI), the City of London Corporation, the Investment Management Association (IMA) and the London Stock Exchange, points out that stamp duty is being paid by ordinary people whose savings and investments are being reduced as a result.
The report finds that stamp duty, a government levy of 0.5 per cent on purchases of shares of UK listed companies:
- Reduces a typical occupational pension scheme fund at retirement by between 1.52 per cent and 2.38 per cent (between £6,441 and £11,538 in today’s money);
- Hits Government schemes such as Stakeholder Pensions (by £7,540 to £10,389) and will similarly impact on the proposed system of Personal Accounts;
- Also hits Child Trust Funds, reducing the funds at the end of the saving cycle by up to £202 for equity based portfolios;
- Increases the costs of the local government pension schemes; and
- Affects the relative attractiveness of UK private and public equity: the cost of equity for publicly listed companies is increased by around 7-8.5 per cent while the effect on the cost of equity for private equity firms is negligible.
Despite generating revenue of around £3 billion per annum for the Government, the research concludes that the abolition of stamp duty could bring substantial benefits, including:
- A long-run permanent rise in UK GDP of between 0.24 per cent and 0.78 per cent, with an increase in the government tax-take of up to £4 billion (minus lost direct receipts of £2.9 billion);
- A one-off increase in equity valuations – potentially of 7.2 per cent– and could see fixed annual investment by FTSE 350 companies rise up to £6.4 billion; and
- A reduction in UK companies’ cost of equity capital by 7-8.5 per cent, increasing to as much as 10-12 per cent in the case of technology companies and 9-11 per cent in the case of retail companies.
Moreover, the report finds that even a government commitment to a gradual abolition of the tax over a five year period, would deliver as much as 90 per cent of the benefit in the reduction of cost of capital associated with immediate abolition.
Commenting on the findings, Michael Snyder, Chairman of Policy at the City of London, said: "This report proves conclusively that stamp duty has a negative impact on the UK economy, savings, pensions and investment. London is the world’s leading global financial centre but stamp duty risks putting the UK at a competitive disadvantage.”
Richard Saunders, Chief Executive of the IMA, said: “Stamp duty penalises ordinary people who invest in flagship government schemes such as stakeholder pensions, Child Trust Funds and the proposed system of Personal Accounts. The irony with all of these is that the Government is giving with one hand while taking away with the other.”
Assessing the impact of the tax on companies, the report finds that abolishing stamp duty would increase ordinary peoples’ savings, capital expenditure of UK companies and share prices and valuations and reduce the cost of equity of UK listed companies.
Peter Montagnon, Director of Investment Affairs at the ABI, said: “Stamp duty is a real handicap. It is a drag on savings and investment and makes our market less competitive. Moreover, it has encouraged the development of alternative trading mechanisms such as contracts of difference, which have damaged transparency.”
Clara Furse, Chief Executive of the London Stock Exchange, said: “In a global economy, a company’s cost of capital relative to its international peers can make the difference between success and failure. For UK public companies, stamp duty raises the cost of capital relative to other markets and other forms of finance, such as private equity. This report shows how abolition of the tax would level the playing field for UK public companies and in so doing boost the country’s economic output.”
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For further information contact:
Rebecca Sandles at the City of London:
Rebecca.firstname.lastname@example.org tel: 020 7332 1452
Erfan Hussain at the ABI:
email@example.com tel: 020 7216 7411
Mona Patel at IMA
firstname.lastname@example.org tel: 020 7831 0898/07834 089332
Patrick Humphris at London Stock Exchange
email@example.com tel: 020 7797 1315
Karen Lewis at Oxera
Karen.Lewis@oxera.com tel: 01865 253 010
The City of London
The City of London Corporation is committed to maintaining and enhancing the status of the wealth and tax-generating business of the City as the world's leading international financial and business centre through its policies and services. Although the City of London Corporation provides local government services for the City, the financial and commercial heart of Britain, its responsibilities also extend far beyond the City boundaries and include management of the Barbican Centre, Central Criminal Court at the Old Bailey, Epping Forest, Hampstead Heath, three wholesale food markets, as well as acting as the London Port Health Authority – and running the Animal Reception Centre at Heathrow.
The ABI is the trade association for Britain’s insurance industry. Its nearly 400 member companies provide over 94% of the insurance business in the UK. It represents insurance companies to the Government, and to the regulatory and other agencies, and is an influential voice on public policy and financial services issues. ABI member companies hold up to a sixth of all investments traded on the London Stock Exchange, on behalf of millions of pensioners and savers.
The Investment Management Association is the trade body representing the UK asset management industry. Its members include independent fund managers, the asset management arms of retail banks, life insurers, investment banks and occupational pension scheme managers. IMA members manage more than £3 trillion on behalf of their clients; they are responsible for over 90% of total assets under management in the UK and 99% of funds under management in UK-authorised collective investment schemes.
London Stock Exchange
The London Stock Exchange is the world’s premier international equity exchange and a leading provider of services that facilitate the raising of capital and the trading of shares. The London Stock Exchange is the most international equities exchange in the world and Europe's largest pool of liquidity. By the end of 2006, the market capitalisation of UK and international companies on the London Stock Exchange’s markets amounted to £4.4 trillion, with £6.7 trillion of equity business transacted over the year.
The London Stock Exchange is a Recognised Investment Exchange (RIE) under the Financial Services and Markets Act 2000 and is supervised by the Financial Services Authority.
Oxera is an independent economics consultancy—one of the longest established in Europe—with an international reputation for integrity, intellectual rigour and work of the highest quality.
Since its inception 25 years ago, Oxera has been offering economics advice using a combination of extensive industry knowledge and unsurpassed expertise in industrial and quantitative economics and corporate finance, placing it at the forefront of developments for company strategy, government policy, competition law, and regulation.