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"Urgent Action On Stamp Duty Needed To Boost The Economy" - Don Cruickshank London Stock Exchange's Chairman

Date 24/03/2003

The London Stock Exchange today called on the Chancellor of the Exchequer to respond to a pressing need to boost the economy by abolishing stamp duty on share transactions in next month's budget.

In its Budget Submission to the Chancellor, the Exchange called for full abolition of stamp duty on all UK equity transactions. It argued stamp duty was having a serious detrimental impact on financial markets and the wider economy.

The Exchange argued that, if the Chancellor were unwilling to fully abolish the tax at this stage, he should demonstrate a credible commitment to a phased abolition with an immediate reduction in the rate at which it is applied. This would send a clear signal to companies and investors that they do not need to account for this tax in their long-term modelling, and would deliver straight away 70 per cent of the likely economic benefit from abolition.

In addition, the Exchange outlined two immediate and broadly revenue-neutral steps that must be taken to avoid destroying innovation in the UK markets:

  • abolition of Stamp Duty on in-kind creation of Exchange Traded Funds and on European ETFs where they are moved into CREST; and
  • abolition of Stamp Duty on transactions resulting from the expiry of OTC equity options.
Last year, the Exchange predicted that total tax take from stamp duty was unsustainable. This has been borne out by most recent figures from the Treasury that show revenues from the tax are predicted to decline to £2.2 billion in the next tax year, down from £4.5 billion in 2001.

Don Cruickshank, the Exchange's Chairman, said: "Now more than ever, urgent action is needed on stamp duty, a tax unique in its distorting effect, which acts as a serious drag on both our markets and our economy.

"The UK's leadership in financial services in Europe is currently at stake as we step up to the challenges of the Financial Services Action Plan. It is difficult to promote the UK's competitiveness when stamp duty has such a stultifying impact on, amongst other things, new secondary market products.

"For example, why is it that Europe's leading index - the FTSE 100 - cannot produce an Exchange Traded Fund which is in the global top 20 or better than seventh place in Europe? The evidence points towards this being caused by the imposition of stamp duty on what is supposedly a stamp duty-free product."

Over the last two years, the Exchange has presented a comprehensive case for abolition of stamp duty. It has commissioned extensive research, much of it at the Treasury's request, which shows how much stamp duty harms the UK economy and the development of its markets.

Among the key findings of the Exchange's research, abolition of stamp duty would:

  • lead to a reduction in the cost of capital for UK companies of 80 basis points from a current average of 12.5%;
  • boost investment by around £3bn pa, with a consequent positive effect on jobs, productivity and GDP growth;
  • remove the bizarre and embarrassing fact that the tax discriminates in favour of non-UK companies in an increasingly global economy. The US, Australia, Japan, Switzerland, even China, all have taken action to reduce or abolish their own comparative taxes; and
  • improve the value of company pension schemes by up to £8,000 over the lifetime of the policy (£93 per year).