The City of London is the only one of the world's 3 major financial centres with such a tax and the UK has by far the highest rate among the G-7 economies. In 2005/6 it raised nearly £3 billion for the Treasury.
The London Stock Exchange, along with the Association of British Insurers, the City of London and the Investment Managers Association have recently commissioned Oxera to conduct a study entitled “Stamp Duty: its impact and the benefits of its abolition”. This research shows how stamp duty is being paid by ordinary people whose savings and investments are being reduced as a result.
In particular, the report finds that Stamp Duty:
- 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 between 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 £4.071 billion (minus lost direct receipts of £2.93 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%, 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.
To read the research click here