Clause 108 - Abolition of stamp duty and SDRT: securities on recognised growth markets

Finance Bill – in a Public Bill Committee at 4:15 pm on 10 June 2014.

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Question proposed, That the clause stand part of the Bill.

Photo of Gary Streeter Gary Streeter Conservative, South West Devon

With this it will be convenient to discuss schedule 20.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I hope that we will be fairly brief on this clause, which introduces schedule 20. It will relieve from stamp duty and stamp duty reserve tax—collectively, stamp tax on shares—trades made on recognised growth markets such as the alternative investment market and the ICAP securities and derivatives exchange. The Government’s stated intention is to boost investor participation in equity growth markets and improve conditions for growing companies raising equity financing.

At present, transfers of shares and securities of UK-registered companies generally attract stamp duty charges at the rate of 0.5%. Stamp duty is charged if the transfer is enacted by execution of a written statement, and SDRT applies to transfers when no written instrument has been executed. The clause means that, as of April this year, buyers of shares traded on recognised growth markets such as AIM and ISDX will no longer have to pay the 0.5% tax.

When the Chancellor announced the measure in the 2013 Budget, he said it was designed to ease access to funding for small and medium-sized businesses to help to reinvigorate the growth of SMEs and, therefore, the wider economy. According to schedule 20, markets will be regarded as recognised growth markets if the majority of the companies on the market have market capitalisations of less than £170 million or if the market’s rules of admission require companies to demonstrate at least 20% compounded annual growth in revenue or employment over the three financial years preceding admission. The new provisions ensure that transfers of shares and securities admitted to trading on markets specifically designed for smaller companies, or for companies that can demonstrate a sustained record of growth, will no longer attract the stamp duty tax charges.

The tax information and impact note estimates the cost that will accrue to the Exchequer as a result of the measure. The Government’s argument is that this is yet another measure to stimulate lending and ensure that money comes into SMEs. Let us hope that it does what it says on the tin, because some of the other measures that the Government have introduced—including the flagship so-called funding for lending scheme—have not been as successful as the Government suggested they would be. The latest figures from the Bank of England show that lending to SMEs declined by £700 million in the three months to April.

The Chancellor argues that clause 108 will incentivise investment that will benefit small businesses, but it is by no means guaranteed that small UK businesses will benefit. I hope that the Minister will respond to that point. I understand that an employee of the Wealth Management Group has raised concerns about the fact that

“not all of the benefit would flow to UK smaller companies starved of financing, which is part of the Government’s rationale…There are some larger businesses listed on exchanges such as AIM and around 40 per cent of AIM companies—representing half of its market cap—are either incorporated overseas or operate outside the UK.”

Photo of Ian Mearns Ian Mearns Labour, Gateshead

My hon. Friend’s point about small and medium-sized enterprises needs to be emphasised. I have said in the Committee before—but it needs to be restated—that if we are going to get the economy in the north-east of England to grow and create jobs in the region, we must stimulate small and medium-sized enterprises. Of 136,000 companies registered in the north-east of England only 1,000 have more than 50 employees. We need to help SMEs.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 4:30, 10 June 2014

My hon. Friend again makes an important point about the number of jobs. Perhaps the Minister will be able to inform us about that. As far as I can see, once again the tax information and impact note contains no information about the number of jobs the Government expect to be created by the changes. That seems to suggest that the tax cut in this context will have no impact on ordinary individuals and families. It would be helpful if the Minister picked up that point.

To return to the point I was making about AIM companies, when the change was first announced in Budget 2013, the top five companies listed in AIM included two oil exploratory companies focused on Africa, a low-cost African airline and a middle eastern oil exploratory company. Two of them had capitalisations well over the £170 million threshold and one had a capitalisation of £1.6 billion. We want to ensure that support is available for SMEs, particularly where jobs can be created in the short term and in areas where people are most squeezed by the cost of living crisis. It is important that whatever measures are put in place impact on those areas and those people.

Will the Minister comment on the points I have made? Can she also tell us what percentage of the companies listed on registered growth markets that will benefit from the change are incorporated and operated in the UK? Will she give us an estimate of the number of SMEs that she expects to benefit from this change? On the subject of jobs, what evidence does she have that  this measure will succeed when other schemes have not created the number of jobs or growth equitably across the UK?

Photo of Andrea Leadsom Andrea Leadsom The Economic Secretary to the Treasury

Clause 108 makes changes to relief from stamp duty and stamp duty reserve tax on purchases of shares in UK companies quoted on recognised growth markets. The measure is designed to boost investor participation in equity growth markets and improve the financing conditions for smaller and growing UK companies.

Transaction taxes are widely considered to be a drag on economic growth. In particular, they increase firms’ cost of capital by depressing their share prices. At a time when financing for small and growing business is hard to come by, the Government want to help to ease the burden. That is why we are abolishing this tax for shares quoted on recognised growth markets. With this measure, we are improving the long-term financing conditions for the smaller and growing British businesses that use AIM, the ISDX growth market and other equity growth markets to raise the funds they need to help them to grow and create jobs.

The value of the UK companies on AIM and the ISDX growth market alone is almost £40 billion. Companies will feel the benefits of this measure via their share prices and every time they conduct equity fundraising. In combination with the Government’s move in August last year to allow AIM shares to be held in ISAs, this measure will attract more investors to equity growth markets, improving liquidity in those markets and the funding environment for more than 800 UK companies.

The clause establishes a recognition process under which stock exchanges meeting certain criteria related to the size or growth rates of companies on those markets may apply to be recognised growth markets. Purchasers of shares in companies quoted on one of those recognised growth markets no longer have to pay stamp duty or SDRT on those purchases, as long as those shares are not also listed on a main market. The relief came into effect on 28 April.

To conclude, long-term economic success depends on today’s small and high-growth companies being able to access affordable long-term financing to grow into the large businesses of tomorrow. With this measure, the Government are showing that they fully support them.

Question put and agreed to.

Clause 108 accordingly ordered to stand part of the Bill.

Schedule 20 agreed to.