LONDON: Stamp duty levied on share purchases is eroding savings and pensions and affecting investment in general, a report by economic consultant Oxera said Thursday.
The Association of British Insurers (ABI), the City of London Corporation, the Investment Management Association and the London Stock Exchange, which commissioned the study, have now called for the abolition of the 0.5 per cent levy, which according to government figures earned the treasury nearly 3 billion pounds a year.
The tax is paid every time a share is bought or sold. Oxera claimed this reduced a workplace pension fund at retirement by between 1.52 per cent and 2.38 -- between 6,441 pounds and 11,538 in cash terms. Even government schemes like stakeholder pensions too are affected by the tax, it said. The duty also reduced the size of equity-based Child Trust Funds by up to 202 pounds.
The study said though a scrapping of the tax will deprive the government of 3 billion pounds a year, it had typical benefits, which can offset this loss. It said for example, the abolition would increase the GDP between 0.24 per cent and 0.78 per cent, which will bring 4 billion pounds to the government by way of taxes a year.
A gradual abolition of stamp duty over five years would deliver up to 90 per cent of the benefits of scrapping the tax immediately. It can also lead to a boost in equity valuations, which will result in a rise of up to 6.4 billion pounds in the fixed annual investment by FTSE 350 companies. There will be an immediate rally in the stock market, which can lead to an appreciation to the extent of 7 per cent.
Another aspect brought out by the study was that the tax suppresses share valuations, which can lead to private equity firms easily launching acquisition bids. The values of shares were suppressed by as much as 8.5 per cent as a result of the tax, the study said.
Director of investment affairs at ABI Peter Montagnon said stamp duty is a drag on savings and investment and makes the U.K. market less competitive.
