Budget 2013: Osborne’s gift to penny share investors

George Osborne's decision to remove stamp duty from penny shares is a step in the right direction. It’s just a shame that he didn’t have the guts to abolish the tax altogether, says Tim Bennett.

It seems George Osborne has learned from at least some of last year's mistakes. Rather than faffing about with taxes on caravans and Cornish pasties, he has come up with something really useful this time around the removal of stamp duty on Aim shares and other growth markets'. He is also consulting on whether these shares should be made eligible for individual savings accounts (Isas).

This is a smart move, but it's a pity it doesn't go further. Stamp duty is a hangover from the days when share certificates had to be physically stamped to show the buyer had paid a tax designed to cover administration costs. Those days are long gone, and now the 0.5% transaction tax is a drag on share trading on British exchanges.

Investment bank CSFB recently commented that the UK is the second most expensive European market to trade shares in once all costs, including this one, are taken into account. So why stop at Aim shares?

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Aim shares also tend to be smaller, riskier companies. We're glad that they are going to be cheaper to trade, but the worry has to be that the removal of stamp duty on these shares and not others, may encourage investors who might otherwise have avoided small caps to buy them for the wrong reasons - a good example of the tax tail wagging the investment dog.

A better move would have been to abolish the tax altogether. Osborne announced his move by claiming that at a time when other parts of Europe are introducing a transaction tax (the so-called Robin Hood transaction tax on financial deals) "here in Britain we are getting rid of one".

Shame he didn't have the guts to go the whole hog but at least his latest move is a step in the right direction. Let's hope he finishes the job soon.

Meanwhile, if you are interested in Aim stocks, sign up for my colleague Tom Bulford's free email The Penny Sleuth.

Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.