Sharing the Wealth - By Gerard B Lyons & Robert Colvile

We therefore commissioned Oxera independently to redo their analysis – providing, for the first time since the financial crisis, an authoritative estimate of the impact of stamp duty on shares on the City and the economy, and the potential benefits of its removal. [...] This one-off increase is estimated using a methodology from the academic literature, which relates the tax change, the level of velocity and the dividend yield to the changes in share prices by estimating the net present value of all future stamp duty payments.26 However, there is another way of measuring the impact of stamp duty: to consider how it affects the cost of equity. [...] Consequently, assuming the current cost of equity of the UK listed companies of 9.34% in nominal terms (or 7.2% in real terms),29 the abolition of stamp duty should likely result in a reduction in the nominal post-tax cost of equity of UK listed companies of 6.9-8.4%. [...] cps.org.uk 13 Sharing the Wealth Stamp duty on shares: analysis of its economic impact and the benefits of its abolition 14 Oxera Cost of equity impact (Cost of equity after the abolition of stamp duty - cost of equity before the abolition of stamp duty)/cost of equity before the abolition of stamp duty Source: Oxera. [...] The impact therefore depends on both the velocity of trading in shares of the company and the proportion of trading that is subject to stamp duty.25 Greater velocity of trading implies a greater cost of equity impact, and a greater proportion of trading subject to stamp duty also implies a greater impact on stamp duty.