New clause 17 - Stamp duty and OFEX

Finance Bill – in a Public Bill Committee at 5:45 pm on 25th June 2002.

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'.—In each of the following provisions—

(a) subsections (1)(a), (2)(a) and (3)(a) of section 80A Finance Act 1986 (changes in financial institutions),

(b) subsection (3)(a of section 80C Finance Act 1986 (repurchases and stock lending),

(c) subsections (1)(a), (2)(a) and (3)(a) of section 88A Finance Act 1986 (exceptions for intermediaries), and

(d) subsection (3)(a) of section 89AA Finance Act 1986 (exceptions for repurchases and stock lending)

after the words ''an EEA exchange,'' insert ''OFEX (UK)''.'—[Mr. Flight.]

Brought up, and read the First time.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

I beg to move, That the clause be read a Second time.

The new clause is designed to exempt from stamp duty the market-making activities of OFEX in line with the market-making activities of the main official list stocks, alternative investment market stocks of the rest of the London market, and any OFEX stocks in Europe. It was an accidental anomaly that OFEX was excluded from the stamp duty exemption regime on market making. Before the Finance Act 1986, market makers on the London exchange benefited from stamp

duty exemption and stamp duty reserve tax. For the Finance Act 1997, section 80A was inserted into the Finance Act 1986 to provide an exemption from stamp duty to persons recognised as intermediaries and members of a European economic area exchange where a sale was effected on the exchange. The exemption recognised the important role of intermediaries in providing liquidity to the markets.

OFEX was not a significant force when that amendment was made to the Finance Act 1986. However, since that time, the OFEX market has become more important and established as the junior equity market in the UK. It has been authorised by the Financial Services Authority, and has become established as a prescribed market under the Financial Services and Markets Act 2000 and a regulated market under the Criminal Justice Act 1993. It is also anticipated that an order including OFEX may be relevant. The other day, OFEX was a relevant EEA market for the purposes of a Financial Services and Markets Act promotion order. In becoming a prescribed market, OFEX needs to satisfy three tests, including the economic importance of the market test. Currently, OFEX has some 200 companies trading on the market and more than 400 companies have used OFEX. To date, companies on OFEX have raised £1 billion. Of these, 71 transferred from OFEX to AIM or directly on to the official list. Clearly, OFEX is a firmly established regulated market and a junior equity market of increasing importance to the UK.

The amount of stamp duty that OFEX currently pays is not great: it paid £260,000 last year. OFEX is concerned that the absence of an exemption will hamper its efforts to develop and grow. It currently has 106 broker dealer members and one specialist as well as 70 corporate advisers. It wants to expand by admitting further specialists. The lack of stamp duty exemption, particularly in comparison with AIM, with which it overlaps and to some extent competes for intermediaries, will be a deterrent to new specialists because of the direct costs of stamp duty on market making. As I said, the specialists are exempt when they trade on AIM.

I understand that the leaders of OFEX have had discussions with the Treasury and I look forward to the Minister telling us, as tacitly agreed the other day, that this unfairness will be addressed, if not specifically by our new clause, in one way or another.

Photo of Ruth Kelly Ruth Kelly Financial Secretary, HM Treasury 6:00 pm, 25th June 2002

I find the hon. Gentleman's arguments persuasive and I shall not repeat them today. I have reflected on the matter and, as he said, the possibility of an exemption has been a subject of correspondence between my officials and OFEX. As he observed, OFEX is established in the marketplace and is regulated as a service company by the Financial Services Authority and under the Financial Service and Markets Act 2000.

However, we are not convinced that the new clause will achieve the desired result in the most effective way. I am sympathetic to the hon. Gentleman's arguments,

but I would recommend that Committee members do not accept the new clause. I intend to table a suitable Government new clause on Report.

Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs

What can I say? I am delighted to hear that. This important issue will be resolved, so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.