LSE attacks tax advantages enjoyed by private predators

The London Stock Exchange has attacked Britain's "unfair" tax system for giving private equity predators a huge advantage over public companies.

Amid mounting controversy over the activities of private equity firms and the fall of a number of high street names, the LSE chief executive Clara Furse said: "We [public companies] are double taxed on both dividends and stamp duty. They are using debt [to finance deals] on which they can write off the tax. There is an unintended policy distortion that the Treasury needs to think deeply about. It suppresses value and there is a massive tax distortion."

Britain's 0.5 per cent stamp duty on every share trade is the highest in the developed world and Mrs Furse said it was "indefensible" in a modern global economy, insisting its abolition had to be "a matter of when and not if". She also praised the Conservatives for "providing leadership" on the issue and said research showed abolition of the tax would be revenue-neutral for the Government because it would be offset by benefits such as higher capital gains tax revenues.

Mrs Furse was speaking as the exchange revealed that it cost £11.4m to successfully see off the unwanted hostile takeover bid from the US Nasdaq exchange earlier this year.

However, the company appears none the worse for the battle, with revenues for the year ending 31 March up 20 per cent to £349.6m and pre-tax profits surging to £161.5m against £93.5m the previous year. The final dividend of 12p brings the total for the year to 18p, up 50 per cent. Exchange terminals in use grew to a record 116,000, up 12,000, while those attributable to professional users were up 8,000 to 96,000.

Mrs Furse dismissed the threat of competition as a result of the EU's Mifid directive - which demands that brokers seek the best possible price for their clients regardless of exchange from November.

Investment banks have said they will set up a rival trading platform, Project Turquoise, to take advantage of this after complaining exchange fees were too high. But Mrs Furse said: "Turquoise has made exchange fees central to its story but even if we were free it would only cut the cost of a trade by 3 per cent at most." She said the cost of a trade was £6.50 for every £1,000 of shares bought, the majority of which is made up of stamp duty. Of that, she added, the exchange's fee represented 4p while advisers, such as investment banks and accountants, made more than £3.5bn from flotations last year compared with the LSE's revenues of £28m from new share issues.

She also rounded on Project Boat, a data reporting venture being set up by a similar group of investment banks to those involved in Turquoise. "They are planning to charge £82 per terminal per month for European off exchange trade data. By our calculations that is worth just £3.50."

Mrs Furse said the exchange "continued to evaluate a range of transactions" including possible takeover deals. She said there had been no contact with the Nasdaq since the failure of the offer. "They remain a shareholder but we haven't called them and they haven't called us." The shares finished up 19p at £13.11, compared with the Nasdaq's offer of £12.43 a share.