Improving resilience, increasing revenue
Updated: Sep 4
The Case for Modernising a Historic Tax
In May 2017, Professor Avinash Persaud of Intelligence Capital published a compelling blueprint for reforming one of the United Kingdom's oldest and most efficient taxes. Introduced in 1694, the stamp duty on share transactions successfully raised £3.3 billion annually for the exchequer at the time of publication. However, the report highlighted that the tax had not been meaningfully updated in thirty years, allowing the financial sector to exploit outdated exemptions amidst rapid technological innovation. Persaud argued that modernising the stamp duty was essential to guide the financial sector toward a sustainable business model in a post-Brexit landscape.
Unlocking Billions in New Revenue
The report identified that the intermediary, or market-maker, exemption was being heavily abused. Originally intended to protect genuine liquidity providers, the exemption was sheltering high-frequency traders and costing the exchequer almost £1 billion every year. By tightening this definition and offering a discounted rate rather than a blanket exemption, alongside expanding the tax to include corporate bonds and equity and credit derivatives, the government could generate massive returns. Persaud calculated that these specific reforms would raise an additional £4.7 billion per year, equating to an enormous £23.5 billion over the course of a five-year parliament.
Curbing Systemic Risk and Churning
Beyond pure revenue generation, the modernised tax would act as a powerful regulatory tool to improve systemic resilience. The report demonstrated that the financial sector had become increasingly reliant on short-term trading models that extracted wealth through excessive portfolio churning. By applying a transaction cost, the tax disproportionately impacts high-frequency traders who destabilise markets and drain liquidity during moments of crisis, such as flash crashes. Furthermore, it discourages the dangerous accumulation of massive gross derivative exposures that threaten the entire financial system during economic downturns.
Eradicating the Relocation Myth
Anticipating industry resistance, Persaud systematically dismantled the banking lobby's threat of relocating trades offshore. Because the stamp duty relies on the issuance principle, purchasers must pay the tax to secure a legally enforceable title to the asset, regardless of where the trade occurs or where the broker is located. For derivatives, the tax would utilise the residency principle. The report noted that modern international transparency initiatives, including strict anti-money laundering rules and mandatory central clearing under the European Market Infrastructure Regulation, have made it virtually impossible for traders to hide their beneficial ownership behind offshore shell companies.
Ultimately, the 2017 report proved that modernising the stamp duty offers a readymade, enforceable mechanism to secure fair public revenues, punish reckless speculation, and protect the wider economy. We invite you to download and read the full report to explore the complete economic rationale supporting these vital reforms.
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