The Chancellor Jeremy Hunt is facing a potential clash with the Square Mile in the coming weeks after the Treasury doubled down on a divisive tax on share trading.
As ministers and regulators push through City reforms to try and revive London’s beleaguered capital markets, a 0.5 per cent stamp duty on shares has been seen as an outlier by analysts despite a clamour of calls for change.
The charge is currently slapped on any share transaction for a company incorporated in the UK and brings in around £3.3bn to the Treasury’s coffers every year, effectively 0.3 per cent of the UK’s total tax take.
Scores of City firms have called for the charge to be scrapped, claiming the levy has hammered the amount of cash flowing into the market.
However, the Treasury doubled down on the charge when approached by City A.M. this week.
“Stamp taxes on shares are carefully designed to raise revenue to help fund public services – contributing billions each year – without damaging the ability of businesses to access capital or impede on London’s position as a global centre for listing companies,” a Treasury spokesperson said.
The comments have already triggered a fierce response from Charles Hall, the head of research at investment bank Peel Hunt, who said the Treasury’s justification for the charge “would be fine if that were the case”.
“Unfortunately there is very clear evidence that stamp duty is both damaging the ability of businesses to access capital and impeding London’s position as a global centre for listing companies,” he told City A.M..
“Furthermore it is directly impacting on the valuation of UK equities and stifling UK economic growth. So it’s a fail on all measures and most importantly it actually reduces total tax take.”
The spat marks the latest in a growing clamour of calls for reform as Hunt gears up to deliver his budget on the 6th March.
In a list of asks to the Treasury in a recent submission, the Quoted Companies Alliance, which represents London’s smaller listed companies, said the tax was the highest in Europe and should at least be wiped out for firms at the smaller end of the market.
Investors in Spain are able to reap a similar exemption for smaller companies below $1bn in value, while the US and Germany currently have no stamp tax on shares. In France the rate is 0.1 per cent.
“Taking action on stamp duty is one of the strongest signals the Chancellor can send of the government’s ongoing commitment to our public markets,” QCA chief executive James Ashton told City A.M. yesterday. “Our proposal to scrap the tax on share trading outside the FTSE 100 preserves much of the revenue raised while also liberating smaller, growth stocks – our blue chips of tomorrow.”
The potential prize from scrapping the charge could be a flow of cash into London-listed companies and a boost in appeal of London’s public markets after a sharp drop-off in listings over the past year.
The number of firms listed in London has fallen by around 40 per cent from the 2008 peak.
The tax is also seen by some as a barrier to amateur investors as ministers look to reignite a culture of equity investment in the UK. Susannah Streeter, head of money and markets at the FTSE 100 retail platform Hargreaves Lansdown, said the taxation environment was “not as supportive of UK equities as it could be” and a potential cut to stamp duty should be on the table.
“Stamp duty on shares is still paid on UK shares and a cut would help encourage investment and level the playing field with investing in overseas stocks,” she added.
The calls come after Peel Hunt fired off a punchy demand to the Treasury this week to “stamp out stamp duty”.
By its own analysis, the London broker said a dent to revenues would be more than offset by an uptick in income through capital gains and inheritance tax. A demand increase of ten per cent in the UK market would add £250bn of value, of which £110bn would be added to UK-based investors, Peel Hunt claimed.
“Stamp duty on shares has been seen as an attractive tax as it is easy and cheap to collect and appears to have limited impact on the behaviour of those that pay it,” Hall said a note to investors. “This is wrong – it is a pernicious tax that is having a material impact on UK equity markets.”