Exchange merger to hasten end of stamp duty

The increasing inevitability of a merger between the stock exchanges of London and Frankfurt will hasten the end of stamp duty, leading tax experts predict.

A combined exchange would give investors the choice of paying the 0.5 per cent levy for every UK share or dealing German stocks for nothing.

Anthony Davis, partner in the stamp duty practice of Ernst & Young, the accountants, said: "The real risk is that people will stop buying UK shares. For example, with engineering companies, do I buy a UK company or a German one? With German shares, you don't have to pay anything."

Philip Ridgway of Deloitte & Touche added: "If they've got a choice of buying a British or a German company, stamp duty may be a factor. "

The dilemma has been raised by the increasing tendency for investment on a pan-European basis. The likelihood of a slump in the turnover of domestic shares will add to the pressure on the Treasury to abolish stamp duty on shares.

UK investors pay more to trade domestic shares than almost any other European country, which has provoked a strong campaign to have the tax abolished or reduced.

"Its inevitable that it will be abolished in the next two years," said Mr Davis. "It was abolished in Germany to protect competitiveness."

Hopes of a merged Anglo-German stock exchange rose last week following comments from Martin Wheatley, the London Stock Exchange's director of market development, who predicted a "significant wave of acquisitions and mergers among the exchanges in Europe".

Pressure for the LSE to take a more active role in the consolidation of European bourses comes following the announcement last month of the formation of Euronext, which is to combine the exchanges of Paris, Brussels and Amsterdam.