Amongst its manifesto pledges for the 2017 election, the Labour Party set out its plans to extend UK stamp taxes. In particular, the Labour Party manifesto, published on 16 May 2017, contained proposals for an extension of stamp duty reserve tax to cover trades in derivatives over shares and to remove the exemption for financial intermediaries. It was estimated that these changes would raise some £5.6bn.
The Labour position in 2017 was informed by a report by Intelligence Capital, Improving resilience, increasing revenue. Intelligence Capital has now produced a further report, Reinforcing resilience which suggests that UK stamp taxes could be even further extended. This report is currently being considered by the shadow chancellor, John McDonnell, as a possible basis for Labour’s position on UK SDRT.
The 2017 report suggested that SDRT could be extended to equity derivatives, corporate debt and certain credit derivatives. The 2019 report goes much further in suggesting an extension of SDRT to foreign exchange transactions (other than by members of the public), interest rate derivatives and both commodity spot and derivative trading. The paper estimates that taxing foreign exchange, interest rate derivatives and commodity derivatives could raise a further £2.1bn per annum.
The reports suggest that liability for the widened version of SDRT should be based on the ‘residence principle’. Accordingly, the tax would be payable wherever the purchaser of assets covered by the tax is UK tax resident with collection through domestic clearing systems where they are used. For trades not using UK clearing systems, the report suggests that the UK government could demand data from international exchanges and clearing houses and could be reconciled against tax returns delivered by market participators. It should also be noted that application of the residence principle would also presumably involve extending the existing SDRT to transactions in non-UK equities.
As with stamp duty, the report suggests that a requirement for the tax to be paid in order for a trade to be legally enforceable would create an incentive to pay the tax which would far outweigh any savings in avoiding it.
A variety of rates are suggested depending on the type of transaction to ensure that the widened tax is not disproportionate to the cost of transactions on the relevant markets. Lower rates are also suggested for financial market firms. These range from 0.01% for interest rate derivatives acquired by financial firms to 0.12% for commodity spot and derivative transactions carried out by non-financial firms.
| Financial firm | Non-financial firm | |
| Forex spot and derivatives | 0.02% | 0.06% |
| Interest rate derivatives | 0.01% | 0.03% |
| Commodity spot and derivatives | 0.04% | 0.12% |
The introduction of any extended UK FTT along the lines suggested would, of course, require detailed rules to address a wide range of issues not covered by the report.
Finally, it should be noted that these proposals for a much wider UK FTT are quite separate from those proposals that were put forward at an EU level and which have proved so difficult to progress.
The broader policy imperative behind these proposals, beyond merely revenue raising, is to remove what is seen as an unfair exemption for ‘fast finance’. In particular, the authors argue that there is a need to rebalance markets and that whilst high-frequency trading can be part of markets, currently it ‘crowds out’ the more beneficial long-term finance. The ideological basis for the wider UK FTT would be to remove what the authors see as ‘artificial biases and preferences given to fast finance’ and create a better balance to financing transactions.
However, whilst John McDonnell is known to support the idea of a wider UK FTT generally, the proposal may not be universally accepted within the Labour movement. Sadiq Kahn, Mayor of London, has described FTTs as ‘madness’ and warned that, in the absence of international agreement, they would simply drive away business to other parts of the world.
As a final point, the revenue raising figures for a wider UK FTT do not, of course, take into account any adverse impact on other UK taxes that might be caused by the introduction of such a tax. For example, other UK taxes on the financial services industry in the UK contribute amounts which far outweigh a small rise in the stamp tax take and any negative impact on that industry (especially at a time when many financial firms are considering the position in the UK as a result of Brexit) might impact the overall tax contribution of that industry by much more than the increased yield from a wider UK FTT.
Amongst its manifesto pledges for the 2017 election, the Labour Party set out its plans to extend UK stamp taxes. In particular, the Labour Party manifesto, published on 16 May 2017, contained proposals for an extension of stamp duty reserve tax to cover trades in derivatives over shares and to remove the exemption for financial intermediaries. It was estimated that these changes would raise some £5.6bn.
The Labour position in 2017 was informed by a report by Intelligence Capital, Improving resilience, increasing revenue. Intelligence Capital has now produced a further report, Reinforcing resilience which suggests that UK stamp taxes could be even further extended. This report is currently being considered by the shadow chancellor, John McDonnell, as a possible basis for Labour’s position on UK SDRT.
The 2017 report suggested that SDRT could be extended to equity derivatives, corporate debt and certain credit derivatives. The 2019 report goes much further in suggesting an extension of SDRT to foreign exchange transactions (other than by members of the public), interest rate derivatives and both commodity spot and derivative trading. The paper estimates that taxing foreign exchange, interest rate derivatives and commodity derivatives could raise a further £2.1bn per annum.
The reports suggest that liability for the widened version of SDRT should be based on the ‘residence principle’. Accordingly, the tax would be payable wherever the purchaser of assets covered by the tax is UK tax resident with collection through domestic clearing systems where they are used. For trades not using UK clearing systems, the report suggests that the UK government could demand data from international exchanges and clearing houses and could be reconciled against tax returns delivered by market participators. It should also be noted that application of the residence principle would also presumably involve extending the existing SDRT to transactions in non-UK equities.
As with stamp duty, the report suggests that a requirement for the tax to be paid in order for a trade to be legally enforceable would create an incentive to pay the tax which would far outweigh any savings in avoiding it.
A variety of rates are suggested depending on the type of transaction to ensure that the widened tax is not disproportionate to the cost of transactions on the relevant markets. Lower rates are also suggested for financial market firms. These range from 0.01% for interest rate derivatives acquired by financial firms to 0.12% for commodity spot and derivative transactions carried out by non-financial firms.
| Financial firm | Non-financial firm | |
| Forex spot and derivatives | 0.02% | 0.06% |
| Interest rate derivatives | 0.01% | 0.03% |
| Commodity spot and derivatives | 0.04% | 0.12% |
The introduction of any extended UK FTT along the lines suggested would, of course, require detailed rules to address a wide range of issues not covered by the report.
Finally, it should be noted that these proposals for a much wider UK FTT are quite separate from those proposals that were put forward at an EU level and which have proved so difficult to progress.
The broader policy imperative behind these proposals, beyond merely revenue raising, is to remove what is seen as an unfair exemption for ‘fast finance’. In particular, the authors argue that there is a need to rebalance markets and that whilst high-frequency trading can be part of markets, currently it ‘crowds out’ the more beneficial long-term finance. The ideological basis for the wider UK FTT would be to remove what the authors see as ‘artificial biases and preferences given to fast finance’ and create a better balance to financing transactions.
However, whilst John McDonnell is known to support the idea of a wider UK FTT generally, the proposal may not be universally accepted within the Labour movement. Sadiq Kahn, Mayor of London, has described FTTs as ‘madness’ and warned that, in the absence of international agreement, they would simply drive away business to other parts of the world.
As a final point, the revenue raising figures for a wider UK FTT do not, of course, take into account any adverse impact on other UK taxes that might be caused by the introduction of such a tax. For example, other UK taxes on the financial services industry in the UK contribute amounts which far outweigh a small rise in the stamp tax take and any negative impact on that industry (especially at a time when many financial firms are considering the position in the UK as a result of Brexit) might impact the overall tax contribution of that industry by much more than the increased yield from a wider UK FTT.
.tmb-editorspic.jpg?sfvrsn=df04ab27_1)
