Britain must cut stamp duty on share trading to revive the flagging stock market, according to leading City brokers.
Peel Hunt urged ministers to address the ‘penal level’ of the tax in the UK as it set out reforms needed to boost share ownership and drive up valuations of London-listed firms.
The head of research at Panmure Gordon, meanwhile, warned of the ‘very real negative economic impact’ caused by stamp duty as it deters investment in UK stocks.
The comments echo calls by the bosses of investment giants Abrdn, AJ Bell, Hargreaves Lansdown and Interactive Investor in The Mail on Sunday last weekend.
The clamour over stamp duty comes amid mounting fears that low valuations have left London-listed stocks vulnerable to predators looking to snap up firms on the cheap. Peel Hunt this week warned the FTSE Small Cap index could disappear by 2028 due to the takeover ‘feeding frenzy’.
Warning: Peel Hunt urged ministers to address the ‘penal level’ of the tax in the UK as it set out reforms needed to boost share ownership and drive up valuations of London-listed firms
Separate figures showed investors have withdrawn cash from UK funds that invest in London-listed shares for 34 months in a row, lowering valuations.
Investors pay 0.5 per cent in stamp duty on the price of UK-listed shares they buy – but the tax does not apply to the purchase of shares in foreign companies.
It means a saver who buys £10,000 of shares in FTSE 100 giants such as Rolls-Royce or Marks & Spencer pays £50 in tax but they pay nothing at all to make the same investment in New York-listed Disney or Nvidia.
Peel Hunt head of research Charles Hall said that ‘addressing the UK’s penal level of stamp duty versus other markets’ would breathe fresh life into the London exchange.
Simon French, chief economist and head of research at Panmure Gordon, added: ‘Countries around the world are engaged in a battle for investment to fuel energy innovation, technology, infrastructure and life science research.
‘Stamp duty acts as friction to that investment coming to UK stock markets. This has a very real negative economic impact to productivity and growth in UK plc.’
Abrdn chief executive Stephen Bird branded the tax ‘as unpatriotic as it is economically destructive’ and argued ‘its removal could be the single biggest boost to UK share ownership’.
Interactive Investor boss Richard Wilson warned ‘we are taxing the stock exchange out of existence’. The FTSE Small Cap Index – which is made up of companies on the UK main market that are not big enough to be in the FTSE 100 or FTSE 250 – has seen its numbers drop from 160 in 2018 to 114 last year.
The number is set to dwindle further with haulier Wincanton, lender Virgin Money and housebuilder Redrow among the 12 companies that agreed to be taken over in the first quarter of 2024 alone.
Meanwhile, there were just £300m of new listings in London in the first quarter compared with £4.3billion across Europe, meaning companies leaving the UK stock market are not being replaced.
‘If we extrapolate the current trend line, then the last company will leave the FTSE Small Cap in 2028,’ said Peel Hunt’s Hall, adding the pace of takeover activity was now ‘relentless’.
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