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Stamp of disapproval

With an estimated two weeks to go before what will be this Chancellor’s last pre-Budget report on December 6, it seems that much of the thunder, at least with respect to saving, has been stolen from him by Treasury Economic Secretary (and future Chancellor?) Ed Balls.

Many were taken by surprise with the early announcement that Isas were here to stay (at least for the duration of a Labour Government). It was no secret that Isas were up for review and everyone expected the sunset clause hanging over them would be lifted in the pre-Budget report. So, now that it has gone, all that remains is for Brown to announce is that the limits will be increased.

The IMA and the fund management industry have always believed that Isas should become a fixed part of the savings landscape as they have been a hugely successful savings vehicle. We have also argued for a more simplified regime. The other announcements made by Balls, such as the moves to bring Peps into the Isa wrapper and the removal of the mini/ maxi distinction, will go some way towards achieving this.

What else would we like to see in the pre-Budget report? One thing we have called for repeatedly is abolition of stamp duty on shares. Far from being a call from the City for another tax break – this could not be further from the truth – the abolition of stamp duty would benefit savers directly as it is, in effect, a tax on savers.

Over time, it reduces the value of pensions, Isas and other forms of saving, with the cost being paid by the small investor. Abolishing it would improve small investors’ investment returns while removing a serious impediment to long-term saving. However, we recognise that stamp duty does raise significant revenue and therefore suggest a full review of the costs and benefits of stamp duty to the economy.

A related quick win would be the abolition of stamp duty reserve tax on fund units, a fund-specific charge which adds complexity and operational costs to the tax regime with little benefit for the Exchequer.

The yield is estimated to be as little as £40m a year and the cost of calculating it could be as much as that. This would be a quick win and one that would benefit investors and the industry alike.

On a more macro level, we have focused some of our demands on the taxation and competitiveness of UK investment funds. There is no doubt that the current tax regime is reducing the attractiveness of the UK as an important fund centre. An IMA/KPMG report into the UK’s position in the European fund industry shows that other jurisdictions such as Dublin and Luxemburg have grown as fund domicile centres at the expense of the UK simply because of the UK tax regime for funds.

The problem is the relative complexity and increased compliance burden of the UK system, along with a lack of a collaborative approach in the UK compared with other regimes. The IMA’s proposals are, therefore, not focused on seeking tax breaks for the industry but on addressing these issues so as to maximise the level of economic activity within the industry and hence the economy as a whole.

Mona Patel is head of communications at the Investment Management Association

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