The UK’s stamp duty on shares is a form of fiscal self-harm
The malaise of our stock markets has been discussed at length over the past year. Reasons offered vary: Britain’s investors lacking a risk appetite, pension funds not putting sufficient capital into equities, a lack of research thanks to Brussels-era unbundling rules, even our liberal approach to short sellers have all been given as perfectly sane reasons for a sea of undervalued companies and poor price to earning ratios.
Perhaps we can add one more to the list: the stamp duty on shares, as the CPS’s Nick King suggests. This acts like any other stamp duty: it creates less of the thing that you’re taxing, in this case share trading. Pension funds find it more expensive to deal in equities; retail investors find their activity comes with additional cost; and everybody ends up poorer via the thousand cuts metaphor.
Yet doing something about it sits entirely within the Treasury’s gift. This isn’t a cultural shift, as we may need from investors to become more risk-on. It’s not a technical reworking of unbundling rules, as we need to do to reinvigorate the research ecosystem in the City. It’s a tax – raising around £4bn a year and helping to plug the holes in our public finances.
Moving to cut or abolish the share tax would needless to say irritate some of the country’s more excitable commentators and no doubt be derided as a costly giveaway to greedy bankers. Now, quite apart from the fact that what is good for the goose in this instance remains good for the gander – after all, every green day on the stock market helps the nation’s pensions look a little healthier – it could also encourage participation in equity markets.
Shareholder capitalism is a worthy goal; the more people who feel they have a direct interest in the performance of Britain’s biggest companies, and those who choose to list here, the better. More scrutiny drives better outcomes, as a rule, and it has the added benefit of creating a larger group of people who would object to policies soaking Britain’s businesses or wealth creators.