Jeremy Hunt must scrap a “pernicious” tax on share trading to breathe life back into the beleaguered London Stock Exchange after a drop-off in new listings, a top investment bank has said.
In a note to investors this morning, London broker and investment bank Peel Hunt called for the Treasury to ditch its stamp duty on shares which it said was pushing investors away from the UK towards the US and Europe.
The charge forces traders to pay a duty of 0.5 per cent on every transaction, which generates £3.3bn in tax revenue for the Treasury every year.
However, it has proved a controversial charge in City circles and has been blamed by top figures for choking off the amount of cash flowing into the market.
“It is clear that stamp duty should be removed as part of a series of reforms to help the recovery in UK capital markets,” said Peel Hunt’s head of research, Charles Hall, in a note to investors.
“At the very least we believe stamp duty on small & midcap shares should be removed, and materially reduced for larger companies. Whilst this would reduce tax in the very short term, it would materially raise tax due to enhanced economic activity and increases in other taxes.”
Scrapping the duty could boost demand for UK shares by 10 per cent and add a potential £250bn of value to the market, according to Peel Hunt’s analysis, with the potential shortfall in tax take made up for in capital gains and inheritance tax.
“Companies would be encouraged to list in the UK, helping to grow corporation tax and increase economic activity, particularly for the vital financial sector,” Hall added.
The calls come as policymakers and regulators hunt for ways to revive the UK’s capital markets after a 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 downturn has triggered action from regulators and London Stock Exchange bosses to try and revive the appeal of the market.
In December, the Financial Conduct Authority confirmed it would press ahead with a shake-up of listing rules designed to boost the appeal of the London Stock Exchange as a listing venue. Politicians are also exploring ways to boost the liquidity of the market and get more money flowing into UK equities.
Among the plans reportedly under consideration from Hunt’s Spring budget is a British ISA, which would offer investors tax breaks for investing in British companies and help avoid stamp duty.
Ministers are also looking to revive a culture of share ownership by offloading the government’s stake in Natwest back into the hands of retail investors.