By Chris Dorrell
Leading City figures have called on the Chancellor to scrap the stamp duty on buying shares in a bid to boost London’s capital markets and support growth.
With concerns growing about the City of London’s competitiveness and the UK’s sluggish economic performance, new research suggests that abolishing the levy in the Spring Budget could increase long-run GDP by somewhere between 0.2 per cent and 0.7 per cent.
The research, commissioned by the Centre for Policy Studies (CPS) and undertaken by independent consultancy Oxera, found that scrapping the tax could increase the overall tax take by around £600m due to its positive impact on growth.
Abolishing the tax could lead to a nearly £7bn increase in business investment from FTSE-listed firms, it found.
Robert Colville, director of the CPS, said the stamp duty is “a tax on growth…It is bad for savers, bad for growth and ultimately, bad for Britain.”
Stamp duty imposes a 0.5 per cent cost on the purchase price of shares, which critics argue puts off international investors. Most international rivals do not have a similar tax and where they do it is levied at a much lower level. The tax brings in about £3.3bn to the Treasury.
A number of City grandees agreed the Chancellor should cut the tax to boost the City. “Keeping stamp duty on shares has acted as a self-imposed set of manacles,” Miles Celic, chief executive of TheCityUK, said.
“It has undermined the UK’s competitiveness as one of the world’s leading international financial centres.”
Paul Diggle, chief economist at Abrdn, pointed out the potential impact of removing stamp duty was larger now than in the past as other transactions costs have fallen.
Reinvigorating the City has been a major policy objective for the Conservatives over the past few months.
Over the weekend, Jeremy Hunt announced new plans to force pension funds to reveal how much of their cash is invested in UK companies in a bid to funnel more domestic capital into London-listed firms.
Hunt is also reportedly considering introducing a ‘British ISA‘ in the Spring Budget, which would allow retail investors to buy UK-listed shares without paying tax.
Charles Hall, head of research at Peel Hunt, said the government could put together a “really meaningful” package of City reforms if scrapping stamp duty went alongside a British ISA and reforms to pensions funds.
“It seems so obvious that it shouldn’t be a debate,” he said.
