Paying more than your share of tax

BrianTora: 'It has long been a bone of contention ...stamp duty is an uncompetitive tax'

The way it looks to me, you cannot open the personal finance pages of a newspaper or magazine without seeing an advertisement or article about internet broking.

The way it looks to me, you cannot open the personal finance pages of a newspaper or magazine without seeing an advertisement or article about internet broking.

Charles Schwab, E-Trade, DLJ Direct, Stocktrade, Investor Link - some of these names have been around for a while, but new ones are springing up all the time. It was a surprise, therefore, to learn that we in the UK are lagging in the race to use the internet for stock-broking transactions.

Germany was confirmed as the internet broking centre of Europe in a recent survey. Nearly half of all trades conducted using on-line brokerages took place there. The UK, in contrast, accounted for just seven per cent of the European total. You do not have to look too far for insight into the reasons why. Investors in this country are saddled with an additional tax - stamp duty.

It has long been a bone of contention between the City and the Government that stamp duty is an anti-competitive tax. In a increasingly global environment, the City argues that companies need not list their shares in London if they can gain some advantage by going elsewhere.

Elsewhere in the European Union stamp duty does not apply. The Government, on the other hand, finds it very easy to collect. It attracts several billion pounds of revenue each year. But as other countries do not tax share buying as heavily, the Government may have to bring its own practices into line, if business is not to migrate elsewhere.

Then there is the fact that Germany and other continental European countries are playing catch up in terms of privatisations and other share offerings. There are plenty of IPOs around in Germany at present, whereas things are somewhat quiet here in the UK market, most of the Government's silver having already been sold off and the wave of demutualisations now pretty much at an end.

In the end it is almost certainly the greater size of the potential market in Germany, and the fact that they carry less of our baggage in their more mature share owning society. Online UK brokers have not delivered the substantial savings in dealing costs that have been gained by the institutions either.

It was nearly 14 years ago that Big Bang dismantled the fixed dealing commission system that had existed here. The cost of trading for the big institutions came down with a bang and has fallen steadily since. Private investors, by contrast, find that the charges they suffer are really very little different to those that existed when commissions were laid down in the Stock Exchange rule book.

If on-line broking does catch hold - and with the increasing sophistication of trading systems and settlement procedures - you can expect to see steady downward pressure on dealing costs, perhaps then you will see the UK creep back up the tables of on-line activity.

* Brian Tora is Chairman of the Greig Middleton Asset Allocation Committee