Gordon Brown is to announce next week he is scrapping the imposition of stamp duty on non-resident exchange traded funds, seeking to boost the trading in London of an increasingly popular financial instrument.
Exchange traded funds are a form of share that tracks the performance of an index or of a group of equities or bonds.
The global market in ETFs has grown by about 27 per cent over the past year and is now worth $500bn. Increased interest in ETFs among retail and institutional investors has led Morgan Stanley to predict that the global market could be worth $2,000bn by 2010.
The market is largely traded in the US and Europe, where no stamp duty is levied, with London lagging far behind. City institutions have complained to the chancellor that international financial institutions that launch ETFs are unwilling to trade them in London.
The chancellor and Ed Balls, city minister, are now heeding London’s concerns. Mr Brown will announce the scrapping of the 0.5 per cent levy in next week’s pre-Budget report.
The move will have little cost for the Treasury because so few non-residential ETFs are traded in London. It does not suggest Mr Brown will scrap stamp duty on all share transactions – a central demand of City leaders but one that would cost the chancellor £4bn a year in tax receipts.
Nevertheless, the move on ETFs was warmly applauded in the City last night. “This is very significant,” said Deborah Fuhr, executive director of investment strategies at Morgan Stanley. “People have not brought these funds to London until now because of stamp duty. This move will certainly boost the London market.”
Another person who follows the market closely in London said: “Most of the European trading in these assets, in terms of volumes, is on the Deutsche Börse and Euronext. This move could see a significant increase in this business for the London stock exchange.”
The announcement on ETFs is set to be the latest in a string of initiatives implemented by Mr Balls to prove the Treasury is taking the City’s concerns seriously. On Wednesday, Mr Balls said the chancellor would host another summit with City leaders in May next year to discuss how the government could help boost London as an international financial centre.
Nevertheless, Mr Brown continues to be criticised by buisness leaders who believe that the level of UK corporation tax and regulation undermines UK comptitiveness and is forcing some major companies to move their operations abroad.
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