§ Mr. Freemanasked the Chancellor of the Exchequer what representations he has received on the stamp duty proposals in his Budget.
§ Mr. LawsonMy proposals to halve the rate of stamp duty on shares as part of a self-financing package involving a broadening of the base of the duty has been generally welcomed. As foreshadowed by my right hon. Friend the Chief Secretary earlier today, I am making some modifications to the original proposals.
In my Budget statement I proposed an additional tax on the creation of certificates representing the deposit of shares, such as American depositary receipts. The certificates can be transferred from seller to buyer without payment of stamp duty, so creating a potential loss of revenue. In this respect ADRs are not unlike United Kingdom bearer shares. They are attractive to many overseas investors in British shares and, mainly for this reason, business in them has recently grown substantially. But United Kingdom institutions and other investors are also free to buy them, and sometimes do.
My objective is that depositary receipts—and similar arrangements—should be taxed at a rate which will 370W broadly speaking eliminate the incentive to use them for tax avoidance. It follows that the tax on the creation of the certificate should so far as possible recompense for the loss of stamp duty on subsequent sales and purchases. From the point of view of the investor he will be getting a transferable "season ticket". He pays more now, but subsequent transfers are free of duty.
I have re-examined the rate of the tax against this criterion and, in the light of information that has become available to us since the Budget, I have concluded that the revenue should be sufficiently safeguarded if the tax on conversion of shares into ADRs and similar instruments were put at 1½ per cent. This is three times what the duty on registered shares will be after the big bang, the same multiple that has applied for some years to the issue of United Kingdom shares in bearer form. The tax on all bearer shares from the big bang will be fixed at the same level, 1½ per cent.
I am confident that the 1½ per cent. rate, which is only a half per cent. more than the rate which applied before the Budget, will ensure that there is no diminution in overseas interest in British shares. But if after the big bang it looks as if ADRs are being used as a means of avoiding stamp duty by United Kingdom residents, I shall have to reconsider the rate of tax on conversion. I shall expect the co-operation of the issuing banks and other market participants in monitoring developments after the big bang.
I have also received representations about the proposal that certain loan stocks should bear stamp duty at the rate of a half per cent.
In the light of these representations, I have decided to restore the exemption for most categories of loan stock. Registered convertibles will, however, continue to be taxed like equities, as they were before the Budget.
I have also decided to make a small modification to my proposal to impose a charge on transactions that take place within a stock exchange account. Purchase of shares by broker-dealers will exempt from the new charge provided the shares are resold within seven days.
The net effect of all these changes, and recent evidence of market activity, leave unchanged the estimated yield of stamp duty as forecast at the time of the Budget.
Fuller details are contained in an Inland Revenue press notice, published today.