Clause 20 - Capital-raising arrangements etc

Finance Bill – in a Public Bill Committee at 10:45 am on 16 January 2024.

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

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

Clause 20 and schedule 11 make changes to ensure continuity in stamp duty and stamp duty reserve tax treatment following changes made by the Retained EU Law (Revocation and Reform) Act 2023 that took effect at the end of 2023.

Stamp duty and stamp duty reserve tax are charged on transfers of securities in UK companies, but not generally on the issue of new securities. The main rate for both taxes is 0.5%. A 1.5% higher rate was applied on the issue or transfer of UK securities into overseas clearance services or depositary receipt systems, to reflect the fact that subsequent transfers of those shares would not be subject to stamp duty or stamp duty reserve tax while the securities remained in those overseas systems and services. A 1.5% higher rate charge was also applied on issues and transfers of bearer instruments. A bearer instrument is a document that constitutes the rights of the holder of that instrument to the securities that the document represents.

Following EU and UK court decisions in 2009 and 2012, HMRC accepted that the 1.5% charge on certain transactions was incompatible with the EU capital duties directive. The incompatible transactions were the issue of securities into depositary receipt systems and clearance services, and certain related transfers known as transfers integral to capital raising. HMRC also recognised that the charge on the issue of bearer instruments was incompatible with the capital duties directive. UK legislation was not amended, because at the time taxpayers could rely on the direct effect of EU law. However, now that the changes in the retained EU law Act have taken effect, that is no longer the case, and UK legislation must therefore be amended to prevent the 1.5% charge from being reintroduced for those transactions.

Clause 20 and schedule 11 will maintain the current position by removing the 1.5% charge in domestic legislation on the issue of UK securities into overseas depositary receipt systems and clearance services, and on certain transfers related to capital raising. They will also remove the 1.5% charge on issues of bearer instruments. The changes provide legislative certainty to businesses that there will be no charge on those transactions going forward.

Prior to its removal, the 1.5% charge on issues was regarded as an expensive obstacle for listed companies wishing to raise capital from overseas investors. It had a negative impact when such companies issued shares, including on the acquisition or takeover of other companies. By permanently removing the charge, the Government are supporting the competitiveness of UK capital markets and making it clear that we are open for business. The changes took effect on 1 January 2024, which ensured that the 0% charge continued seamlessly following the changes made by the REUL Act taking effect.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury) 11:00, 16 January 2024

The Labour party supports the clause, which is a necessary intervention to ensure that UK companies previously able to rely on the direct effect of EU law are not left at a disadvantage to international counterparts when issuing UK shares and securities on overseas exchanges. The legal certainty and the removal of the potential 1.5% charge will be welcomed by UK firms considering listing on overseas exchanges. It is vital that our tax system remains internationally competitive.

However, our priority in government will be to overhaul our domestic capital markets to ensure that high-growth British companies critical to the future growth of the economy choose to list here in the UK instead of opting for exchanges in the US and Asia. The UK currently lags far behind competitor jurisdictions, and the Government must work in partnership with industry and regulators if we want to regain our status as a top global listings destination.

Although I do not have any issue with the exemption confirmed by clause 20 and schedule 11, I urge the Minister to ensure that, beyond recent changes to the listings rules, he prioritises listening to industry voices such as the Capital Markets Industry Taskforce about the solutions that are desperately needed to resuscitate our own domestic markets.

Photo of Nigel Huddleston Nigel Huddleston The Financial Secretary to the Treasury

I will not stray into a broader debate; we will have that, I am sure, on Third Reading or at another point. I made my points on the broader economy earlier, but I gently request that the Opposition stop talking the UK economy and UK businesses down. By doing so, they are talking down the workers and companies in their own constituencies.

This measure is designed to ensure the competitiveness of the UK’s code in relation to financial services, by providing certainty that unwelcome frictions will not be reintroduced for UK companies that wish to operate globally. I commend the clause and the schedule to the Committee.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Schedule 11 agreed to.