Labour Party proposals to re-introduce Stamp Duty Reserve Tax (SDRT) for funds have been criticised by the Investment Management Association (IMA) for imposing a £145m annual cost on investors and encouraging greater use of offshore financial centres.

Labour politicians claimed that Schedule 19 SDRT, which was abolished in this year's Budget, created 'a loophole for hedge funds' and have made calls at this week's party conference for the tax to be re-instated.

But IMA chief executive Daniel Godfrey said that retail funds, not just hedge funds, would be affected by the reintroduction, which would result in a £145m annual cost on the ordinary savers, investors and pensioners.

'This tax is not paid by offshore funds that can be freely bought by UK citizens. As a consequence of this ordinary UK citizens are being driven to invest through offshore financial centres. This unequal playing field has resulted in UK asset managers managing more assets in funds domiciled in Luxembourg and Dublin than in the UK,' Godfrey said.

Research by KPMG for IMA has calculated that every £1bn of funds domiciling in the UK would generate approximately £1m of new tax revenues, which included taxes as a result of job creation in the UK.

Godfrey said: 'Given the fact that UK asset managers now manage over £700bn in offshore funds, the amounts at stake are very important. Significant tax revenues are lost as a consequence of an uncompetitive playing field and the withdrawal of S19 SDRT is an important step in making the UK a competitive fund domicile once again.'