The London Stock Exchange (LSE), City of London Corporation (CLC), Association of British Insurers (ABI) and Investment Management Association (IMA) published a report last month calling for the abolition of stamp duty on shares - which raises more than £3bn. The report was written by Oxford based Oxera and claimed that abolition of stamp duty could pay for itself by increasing firms' capital expenditure due to a lower cost of capital, thereby increasing GDP by 0.24% - 0.78%. This would, it claimed increase other tax revenues by between £1.3bn and £4bn.
Now a critique that I've been sent by another Oxford based international consulting firm, Oxford Analytica, suggests that Oxera's analysis is highly questionable. On the key claim that abolition of stamp duty could pay for itself, the critique is most damning. It demonstrates that under the assumptions used in the report's calculation, government could infinitely subsidise the cost of capital for listed firms and obtain permanent, infinitely large increases in both GDP and tax revenues. It's hardly surprising that these assumptions suggest the effect of abolishing stamp duty could be positive! I've come across this sort of problem with Oxera's work before, in Jersey in particular.
The result is that far from suggesting that stamp duty should be abolished the critique suggests stamp duty is a relatively undistorting way of raising a useful chunk of revenue - and the feeble special pleading from institutions involved should be ignored. No-one - from Gordon Brown to George Osborne - should take this report seriously.
I agree with Oxford Analytica.