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 beencommissioned 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 for 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.”
Ends
For further information, contact:
Rebecca Sandles at the City of London:
email /
tel: 020 7332 1452
Erfan Hussain at the ABI:
email / tel: 020 7216
7411
Mona Patel at IMA:
email / tel: 020 7831
0898/07834 089332
Patrick Humphris at London Stock Exchange:
email / tel:
020 7797 1315
Karen Lewis at Oxera:
email / tel: 01865 253
010
Notes for editors
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.
ABI:
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.
IMA:
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:
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.