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Balls Announces New Tax Measures Designed To Boost City Competitiveness

by Jason Gorringe,, London

21 February 2007

Speaking on Tuesday at the second meeting of the High Level Group on City Competitiveness, Economic Secretary to the UK Treasury, Ed Balls announced the implementation of tax measures to boost the competitiveness of the City of London.

The details of the three measures are as follows:

  • First, from November 2007, the Government will no longer require transactions in shares admitted to trading on a regulated market under MiFID to be reported to that market, or those intermediaries to be members of that market, in order for intermediaries to benefit from stamp duty relief. Currently, relief from stamp duty is available for intermediaries that trade securities listed on the main market of the London Stock Exchange (LSE) only if they are members of the LSE and they report their trades to the LSE. This will allow new providers of transaction reporting services to enter the market more easily. The Government is today publishing draft clauses for consultation in advance of this year's Finance Bill;
  • Second, the Government is announcing that, in addition to shares admitted to trading on a regulated market, it also intends to extend this approach to include shares admitted to trading on a Multilateral Trading Facility (MTF). Currently, in order to benefit from stamp duty relief, intermediaries trading in such securities are required to report transactions to the market on which the securities are admitted to trade. The Government intends to remove this requirement, in order to further extend choice in transaction reporting. However, before proceeding with this proposal, the Government is providing time for the Financial Services Authority to consider fully any possible regulatory implications from this change and will provide an update on progress at the Pre-Budget Report;
  • Third, the Government also proposes to modernise the definition of a Recognised Stock Exchange for tax purposes to allow shares traded on other regulated markets under MiFID to benefit from the same tax arrangements that currently apply only to the LSE in the UK. For example, this will allow shares listed by the UK Listing Authority and traded on a regulated market under MiFID to be held in an Individual Savings Account or to meet the listing requirement to be a UK Real Estate Investment Trust. The Government will publish draft clauses in advance of this year's Finance Bill.

The measures announced on Tuesday aim to modernise the tax system to remove obstacles to competition and expand choice in trading financial instruments in the UK. They will allow firms to benefit from the new opportunities offered by liberalisation of financial regulation in the European Union, and specifically from the introduction of the Markets in Financial Instruments Directive (MiFID).

Speaking after the meeting, Ed Balls announced that:

"The opening up of financial markets in the EU is a great opportunity for the UK. I was grateful for the positive discussion this morning with City leaders and Commissioners McCreevy and Kroes on how we can, together, address some of the key policy challenges facing European financial services in the coming months. With the measures I am announcing today, the structure of the UK tax regime will reinforce the more open and competitive trading environment that we are creating in Europe."

Meanwhile, speaking at the meeting with regard to MiFID implementation, Internal Market Commissioner, Charlie McCreevy observed that:

"Our efforts to integrate European capital markets are beginning to pay off. Markets in every segment of European financial services are strong – growing fast – indeed faster than the US according to recent reports."

"This is good news for the real economy in the EU – with financial markets, private equity, hedge funds etc, driving overall productivity improvement – along with the benefits for companies of a lower cost of capital. And very good news for the City – which is booming."

"We have got to where we are today by a combination of factors; our determination to try to set the right balanced, legal framework; open, bottom up policy making; economic impact analyses; listening; shaping, consensually with strong involvement of market participants and regulators."

"The real challenge we face now is to implement and enforce evenly what we have agreed, MiFID being key."

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