Labour hedging bets: Ed's assault on financial services
Note to the brains behind Labour’s economic policy, or lack of them: This is where the seller pays the buyer the difference between the current value of the asset in question and the value of the underlying contract. Total Labour economic incompetence, again!
Ed Miliband’s scathing attack on the hedge fund industry during PMQ’s is another reminder of the economic incompetence that lies ahead should he weasel his way into Number 10.
Let’s take a step back and look at what he is calling for and compare it to reality. Ed is claiming that UK based hedge funds are avoiding paying stamp duty on their share transactions. This claim could cover a whole multitude of sins. What he is actually referring to is a tax exemption.
Introduced back in the 90s, this means that investment firms which buy and sell shares on behalf of their clients do not pay stamp duty reserve tax.
So, here is the reality. Firstly, it is not just hedge funds, its asset managers, pension funds and investment banks that this applies to. Secondly, no stamp duty is paid only when, say, an investment bank enters into a specific derivatives contract with a fund. Contracts for difference, or CFDs to those who work in high finance, are an example.
Note to the brains behind Labour’s economic policy, or lack of them: this is where the seller pays the buyer the difference between the current value of the asset in question and the value of the underlying contract.
Now that’s clear, let’s move onto the politics behind all this. This unfair targeting of a certain part of the financial sector is clearly an attempt to build on the save the health service narrative. The problem is that scrapping this exemption would not even go a quarter of the way to raising the capital required to fund Miliband’s NHS dream.
However, more importantly, Ed is completely dismissing an industry that contributes over £4b a year to the UK budget. As our banks continue to be hamstrung by rules to increase capital reserves, hedge funds provide a much needed alternative source of finance which can meet the shortfall in lending.
On top of all this, and perhaps the biggest thing Labour is risking, is that hedge funds are the bedrock of a healthy savings society. There are tax and retirement savings rules which drive people to invest more savings in the capital markets, helping pension schemes provide for our aging population.
These rules not only support retirement provision, but also provide a vital source for the millions of British businesses attempting to raise finance.
Putting these clear benefits at risk is perhaps the final reminder we need that when it comes to running the economy, Miliband is a sandwich (Bacon of course), short of a picnic.
Tim Focas is a financial services consultant based in London @TimFocas66
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