The Bribble

[ February 2, 2000 ]

Do Politicians Stamp because it's their Duty?

By Chris Beardsmore (prijon)

Having read the Dear Chancellor... letter and the focused campaign against Stamp Duty I couldn't help but respond with a Bribble, though Jokers Corner might have been more appropriate (if the jokes are so good then why do you keep them in the corner?).

So my 'Killer Question' to the Chancellor is:

If Stamp Duty is such a great tax then why don't the Government levy it on their own shares?

Gilts (or is that Guilts?), that is, Government shares and Government bonds, are by some strange quirk exempt from Stamp Duty.

Let's firstly understand Stamp Duty clearly. If I purchase shares in any UK-traded public company whose aim is to make money for its shareholders, I pay the Government 0.5% of the purchase price as a form of tax. Now if I go and buy Gilts, or shares in the Government (which, by the way, says nothing about delivering value to its shareholders) I avoid paying tax (I had this strange idea in my head that tax avoidance was a serious no-no). Put simply, if the Government considers that Stamp Duty is such a good thing, then why don't they apply it to their own shares? This sounds like the tricky sort of question best answered by a Paymaster General.

Now let's see if we can understand Capital Gains Tax. Invest £1 in a share; use your skill and judgement and make a million; pay approximately four hundred thousand pounds in CGT to the Government. Alternatively invest £1 in the National Lottery; using no skill whatsoever make a million; and pay nothing to the Government. This seems to me a fair and equitable return on skill and judgement -- just what you need to encourage the entrepreneurial skills this country needs. In fact, it needs all the skill and judgement it can get just to work through the arcane rules for indexation and taper relief on Capital Gains.

So what I propose in terms of Stamp Duty and CGT reform is blindingly simple: replace Stamp Duty with VAT at 17.5% on all share purchases (including Gilts of course) and scrap CGT altogether. A radical proposal, I admit, but consider it carefully. It would give the Government two important advantages:

• Firstly, it would allow them to achieve their aim stated of cutting out red tape and allow them to simplify taxation;
• Secondly, it would allow them to demonstrate real Government value add to share trading in this country

I am sure you will agree it would be great headline-grabbing, media-hyping, taxpayer-befuddling, vote-pulling stuff.

I predict the consequence would be that those who really want, or need, to trade in the UK would continue to do so, and those who don't will gradually go offshore and trade in the USA or elsewhere. The 17.5% VAT should give a nice quick boost in tax revenue for this Government, and the subsequent rapid decline and death of the City in 3 to 4 years will neatly fall into the next Government's lap. I think that this would be a truly brilliant short-term strategy worthy of any Government. Perhaps they should think of doing something similar with duty on alcohol?

The alternative, of course is to go with the Fool, scrap Stamp Duty and simplify CGT. I believe that in the long term, in a global Internet economy, national taxes like Stamp Duty are unsustainable and will damage individual nations' competitiveness -- but then it's only Fools who think long term!

Related Links
• Campaign Special -- Stamp Out Stamp Duty
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