US bull run brings windfall to Exchequer

British investor confidence boosts stamp duty receipts to levels last seen in 2007 adding to fears of crunch

SURGING investment in shares is boosting stamp duty tax payments to levels not seen since the peak of the boom years in 2007 and the dotcom bubble in 2000.

British investors are being spurred on by the US market’s record-breaking bull run, which is driving investment in equities across much of the world.

It adds to evidence investor sentiment has fully recovered from the financial crisis. But it could be another warning sign that exuberant markets are at risk of entering a bubble.

So far this financial year the Treasury has raised £1.3bn from stamp duty on share purchases, up by 17pc on the same period last year. If this continues the Exchequer will bag a windfall haul of more than £4bn, a level not hit for more than a decade.

FTSE 350 share trading volumes are up by more than 20pc this year on their previous peaks in 2007 or 1999, according to data from Bloomberg.

However, past eras of such vigorous stock buying were followed by a crunch. There are already signs of wobbling markets in the US tech sector, where booming prices have left investors exposed to any bad news.

“Markets have been rising for such a long time, expectations are relatively high,” said Tom Stevenson at Fidelity Personal Investing. “When you get disappointing results in that environment then you get some pretty savage market reactions.”

US markets are likely to fall next year as boom turns to a crunch of around 20pc, according to John Higgins at Capital Economics. Such a bust would hit UK markets too, he believes.

“There is a good chance the UK stock market will suffer as a result of that,” he said. “When the US stock market falls sharply we invariably see other stock markets around the world doing likewise, irrespective of conditions in the local economy.

“Many of these stock markets, particularly the FTSE, are chock-full of international companies so are exposed to what is going on in the global economy as much as they are at home.” Britain is particularly exposed to any downturn in the world economy because it is home to so many giant companies. This could mean investors, who have not seen shares rise as much as those in the US, could be hit by a downturn that is just as severe.

“The UK is globally exposed, people use the UK’S markets as a proxy for buying into the upturn in global activity,” said Andrew Milligan at Aberdeen Standard Investments.

Risks to the market include the trade war, higher interest rates, China’s debts and the eurozone, Mr Milligan said, though these are midterm problems that are only likely to strike in 2020. “In the past 10 years people have been very fearful, there has been a lot of money parked on the sidelines for a very long time,” said Robert Burgeman at Brewin Dolphin.

“I get people who are worried about the level of stock markets and think that there is a crash around the corner, but that is music to my ears because it means we have not reached that final capitulation stage [of a bubble] when people say: ‘Stuff it, I am all in’. We haven’t got to that stage yet where the taxi driver is telling you about the latest stock he has been buying.”