At PMQs last week Ed Miliband repeatedly attacked David Cameron for giving an “£145 million tax cut to hedge funds”, claiming that it was payback for donations from City tycoons and hedge fund managers. A pretty extraordinary claim that the Labour party is persisting with despite there having been no such thing and despite having been repeatedly told by the financial services industry, never mind the Treasury, that this is not the case. They must know they are misleading the public with the claim and yet still they make it for political purposes.
In a letter to the FT following the 2013 Labour conference the heads of the pension funds trade body (NAPF), the investment sector trade body (the IMA) and the insurance trade body (the ABI) wrote:
“The Labour party has announced a policy proposal to reintroduce Schedule 19 Stamp Duty Reserve Tax describing its original withdrawal as a ‘loophole for hedge funds’. In fact, this tax was paid by UK authorised funds, not hedge funds. Its reintroduction would impose a £145m annual cost on the ordinary savers, investors and pensioners, who are the beneficiaries of its abolition. At a time when it is so important that people save and invest, both for their old age and to provide the capital we need for economic growth, we should be seeking more ways to encourage them rather than the opposite.” So far from hitting the Tory-funding hedgies of legend it actually hits pensioners in the pocket.
It is wrong in any event to suggest that the government has given extra tax breaks to the UK’s hedge fund industry – quite the reverse, after recent changes in the tax rules on partnerships. The industry’s annual tax contribution, at some £4 billion, has never been greater than it is now.
What would re-introducing the Schedule 19 Stamp Duty Reserve Tax really achieve? The impact on the City would be to set London back as a financial centre. At the micro level, it would cause damage to London’s quite vibrant investment fund administration sector, which employs thousands of generally quite modestly-paid, back-office, hardworking people – not flashy hedge fund managers.
Resurrecting this Stamp Duty is a policy designed to provide a basis for a PMQs soundbite which is untrue, that will hit pensioners’ savings and damage jobs for modestly paid workers – a triple whammy of a policy based on fallacy which is bound to fail.