A report examining the impact of stamp duty and painting a picture of an economy without it has prompted more calls for its abolition.
Research from Oxera suggests stamp duty on share transactions is damaging the economy, eroding pensions and savings, and hitting the investment industry.
The report ‘Stamp duty: its impact and the benefits of its abolition’, which was commissioned by the Association of British Insurers (ABI), the City of London Corporation, the Investment Management Association (IMA) and the London Stock Exchange, suggests stamp duty is being paid by ordinary people whose savings and investments are being reduced as a result.
It suggests stamp duty, a government levy of 0.5% 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.
The Oxera report suggests, despite generating revenue of around £3bn per annum for the Government, the abolition of stamp duty could bring substantial benefits.
It says not only would there be a permanent rise in UK GDP of around 0.5%, but there would also be a one-off increase in equity valuations – possibly by as much as 7% - and a reduction in UK companies’ cost of equity capital.
In addition, the report suggests even a government commitment to a gradual abolition of the tax over a five year period would deliver as much as 90% of the benefit in the reduction of cost of capital associated with immediate abolition.
Richard Saunders, chief executive of the IMA, says: “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 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 ABI, says: “Stamp duty is a real handicap. It is a drag on savings and investment and makes our market less competitive.”
Clara Furse, chief executive of the London Stock Exchange, adds: “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.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Scott Sinclair on 020 7034 2636 or email [email protected]IFAonline
Follows Asset Management Market Study
To open in second half of 2019
Regular reminders and updates
9 December 2019 deadline
Joe McDonnell joins as head of portfolio solutions (EMEA)