LSE chief slams stamp duty and Tobin taxes

The new chief executive wants to discourage investors from trading in foreign, rather than UK, stocks, writes Tom Fairless

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Xavier Rolet, the chief executive of the London Stock Exchange, has slammed stamp duty at a European hearing into “Tobin” taxes, warning it had a “significant dampening effect” on the UK economy and hurt savers and small companies.

Governments around the world have considered introducing new taxes on financial transactions in the wake of the financial crisis as a means of reducing their fiscal deficits and making the financial sector pay for its perceived profligacy.

But speaking at a European Parliament committee hearing, Rolet said the 0.5 percent tax levied by the UK Government on equity and bond trades was “a tax on the real economy that is paid by small and mid-size enterprises, savers and investors”.

He said: “We have our very own transaction tax in the UK. It is called stamp duty. Stamp duty is a tax on the real economy that is not paid by intermediaries such as banks but by corporations, savers and investors.”

Rolet cited research that found stamp duty reduced UK equity volumes by 20 percent and the average citizen’s life savings by up to 5 percent. The tax also increased the cost of capital for companies by up to 12 percent, with the greatest impact on high-tech companies, Rolet said.

Opponents of stamp duty argue that removing the tax would provide a much-needed boost to the economy, by stimulating investment and discouraging investors from trading in foreign, rather than UK, stocks. That view was supported by a 2007 report by UK consultancy Oxera, which claimed that abolition of the tax would result in a 7.2 percent increase in the value of UK listed shares, worth GBP 146bn (EUR 162bn).

The UK is one of only a handful of major countries to impose the tax. Trading is free in Germany and France, while US investors pay a negligible amount to cover the running costs of the SEC.

Rolet said that such “Tobin taxes” risk rendering Europe’s equity markets even less liquid and hurting small companies. He said: “Equities turnover in the EU is one tenth that in the US, and the weight bears predominantly on small companies that cannot raise capital elsewhere. It is a competitive and financial handicap for small companies.”

Rather than deterring investment in equities, governments should encourage it as a means of improving companies’ finances, according to Rolet. He said: “We are in the middle of a very profound financially-induced recession that is the result of a debt-fuelled binge. Banks cannot direct capital to SMEs because they need to repair their balance sheets. The solution is improved access to equities as an asset class.”

The idea of a “Tobin” tax was mooted in August by Lord Turner, the chairman of the UK Financial Services Authority, who said that they could help eliminate financial excess and profits. Last month, prime minister Gordon Brown appeared to carry out a U-turn when he suggested that such taxes could be considered.

A spokesman for the Treasury said stamp tax on shares raised nearly GBP 3.2bn in the 2008-09 fiscal year and was an important contributor to sound public finances and public services. He said: “Removal of the tax would result in significant reduction in public expenditure. There is no firm evidence that it significantly harms trade in UK equities, which has more than trebled since 1997.”