Time to stamp out this tax on share growth

Anthony Hilton12 April 2012

THE past two years may have been a miserable time for stock market investors but they have been interestingly prosperous for the Stock Exchange. Its just-published annual report says turnover grew 25% last year to an average daily volume of 200,000 trades and profits rose by 150%. The electronic trading system Sets showed even more spectacular growth with an increase in turnover of 86% to 60,000.

Nor is it just the main exchange that has prospered. Germany's Neuer Markt, having figured so strongly in the dotcom boom, has gone into a near-fatal tailspin, as have most of the other markets which flourished briefly in that mad summer. This has left the stage clear for AIM, the London market for growth companies, to stake its claim to be the most dynamic such market in the world. Last year it accounted for 40% of western Europe's initial public offerings.

Growth such as this underlines why the Stock Exchange is lobbying so hard to have stamp duty lifted. Everyone apart from Chancellor Gordon Brown knows and understands what a damaging tax this is to London's competitiveness and what a deterrent it is to share dealing. Stories abound of European investors who will put their money anywhere but London because they refuse to pay the tax.

Studies of other countries show that when the tax is cut or abolished it leads to a significant and lasting growth in trading volumes, better liquidity and market efficiency and a lower cost of capital for market participants. These benefits are almost certain to more than compensate for any loss of revenue were the tax to go.

When the Exchange can achieve this level of growth despite the drag of the tax it underlines how much more it might achieve if the Treasury allowed it to compete evenly with the other markets of Europe.

Green-fingered

PHILIP Green, the man who has transformed Bhs, is clearly the retailer in form. Woolworths, having declared a loss in the midst of the biggest retail boom for a decade, represents the other end of the spectrum. Woolies exists to prove retailing is not as easy as it looks.

It was surely a monumental mistake, however, for Woolworths to reveal to Green how weak it is. It might as well have hoisted a 'for sale' sign over the company. For while some may put their faith in the three-year recovery plan which recently-hired chief executive Trevor Bish-Jones has produced from his hat, others who have studied Woolworths for a long time will have their doubts.

By coincidence this year marks the 20th anniversary of the Paternoster bid for Woolworths. That pioneering deal was born of shareholder despair about the stores group's lacklustre performance and inability to reinvent itself. The bid was the first management buy-in and its purpose was to put people in power who would sort it out - one of whom, of course, was a younger Geoff Mulcahy, now Sir Geoff.

Even after the bid succeeded, however, the key to the subsequent success of what came to be called Kingfisher under chief executive Mulcahy was not so much sorting out the merchandise in Woolworths as being ruthless in using its cashflows and property assets to finance expansion of the alternative retail ideas of B&Q, Comet and Superdrug. This worked and collectively the group did well, but Woolworths' role was to provide the treasure to be plundered.

The moral of this story is that no one has ever sorted out Woolworths in 20 years, so why should we believe the current team can hack it? If Philip Green thinks he can do the job, shareholders should tell the board to bite his hand off.

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