Improving Resilience, Increasing Revenue: The Case for Modernising the UK's Stamp Duty on Shares

Abstract

This paper examines the economic costs and benefits of extending the UK's existing tax on share transactions to include other securities, and of removing abuses of the current exemption for market makers. The post-crisis regulatory environment, especially changes to beneficial ownership requirements and tax information agreements has meant that finance is no longer, if it ever was, in unreachable part of cyberspace. The systemic benefits of taxing high frequency turnover are more readily available today than in the past. The paper finds that extensions of the existing stamp duty that do not risk relocation of the venue of trading would raise an additional £5bn per annum. The paper finds that the costs of the tax are often exaggerated. The analysis presented in this paper fits more readily with the impact of the recent French and Italian turnover taxes than than existing paradigms of financial transaction taxes.

Keywords: financial transaction taxes, systemic risks, market liquidity, HFT

JEL Classification: B26, D23, F38, G14, G18, G24, G28, H21, H26