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.”
