In recent months, there has been an intense focus on the competitiveness of the City of London. The Government has unveiled a suite of reforms intended to bolster financial services, and unleash more capital and investment. Labour, too, have promised to ‘unashamedly champion the financial services sector as one of the UK’s greatest assets’.
Yet neither party has addressed the fact that the UK puts itself at a major competitive disadvantage by imposing a 0.5% transaction tax on a wide range of share purchases, in the form of stamp duty on shares. This is in contrast to our major international rivals who do not impose such a tax.
Independent modelling by the Oxera consultancy for the Centre for Policy Studies – the first full analysis of the impact of the tax since the financial crisis – shows that abolishing stamp duty on shares could be expected to lead to a permanent increase in GDP of between 0.2% and 0.7% in the long run, alongside an increase in the annual business investment of FTSE All Share index companies of up to £6.8 billion. It would also increase the size of a representative DC pension fund by the equivalent of £6,051.
It could also be expected to lead to a one-off increase of 4.0% in UK equity valuations, which would represent a £99.8 billion capital gain. And it would address the lack of liquidity in UK markets by removing a major competitive disadvantage facing the UK.
Due to the wider growth and investment it would promote, and the increase in share prices and pension pots, the measure also has the potential to be revenue-positive. Oxera’s mid-point estimate is that it would increase the overall tax take by approximately £600m.
Commenting on the report, David Postings, UK Finance Chief Executive said:
‘This is an important piece of work by the Centre for Policy Studies. It clearly sets out the economic case for reducing or removing the 0.5% stamp duty levied on share purchases. This is something we at UK Finance have advocated for given it would enhance UK competitiveness and boost investment in UK equities.’
Miles Celic, Chief Executive Officer, TheCityUK, said:
‘Keeping stamp duty on shares has acted as a self-imposed set of manacles. It has undermined the UK’s competitiveness as one of the world’s leading international financial centres. Removing stamp duty will not only enhance the UK’s competitive edge, it will also drive institutional and retail investment in equities, and unleash growth.’
Robert Colvile - Monday, 4th March, 2024
Gerard was a Business Researcher at the Centre for Policy Studies until summer 2023, having previously worked for a public relations firm in the City where he specialised in financial, corporate and crisis communications.
Robert Colvile is Director of the CPS and Editor-in-Chief of CapX, and was one of the co-authors of the 2019 Conservative Party manifesto. He currently writes a weekly column for The Sunday Times and was previously head of comment at the Daily and Sunday Telegraph and news director at BuzzFeed UK, as well as an editor, columnist and leader writer with the Telegraph.
