At the G20 in Cannes, a growing group of countries from France to Brazil backed the Financial Transaction Tax (FTT), and the link between the FTT and fighting poverty and climate change became clearer than ever. Following the G20, on 8 November George Osborne met with EU Finance Ministers in Brussels, and with France and Germany as big supporters, the FTT was on the agenda. Osborne has ended up postponing his return to London after a row over proposals for a FTT. By The Robin Hood Tax Campaign
According to sources Osborne further frustrated progress by asking what the point was in even having a conversation about the Financial Transaction Tax given that it was going to be rejected. He then asked if it was "the best way to spend our time". The Chancellor has also said no bank would end up paying the tax and the final payer would be pensioners.
What did Osborne say and why was it wrong?
George Osborne appears determined to ignore the positives and exaggerate potential negative impacts of Financial Transaction Taxes. The Chancellor's opposition is based on bad economics and a political desire to put the privileged few in the City ahead of the wishes and needs of the rest of us.
* A Financial Transaction Tax will cause business to relocate
George Osborne's position that it needs to be global to work is disingenuous. The best evidence that this is not the case is right here in the UK. Our unilateral FTT on shares raises more than £3bn for the Exchequer each year without a significant loss of business from the UK. Several other countries including South Korea, India, the US, South Africa and Brazil have also unilaterally implemented FTTs.
These examples provide the basis for a well designed low rate tax that can avoid migration. As outlined at the ECOFIN meeting, it does not matter where the transactions take place, but which parties are involved, making avoidance harder. The IMF has said that FTTs “do not automatically drive out financial activity to an unacceptable extent”. Those who cite the Swedish example as evidence that FTTs lead to a loss of business miss the point as that was a uniquely bad example.
* A Financial Transaction tax will negatively impact on growth
The biggest threat to long term growth is not an FTT, but an out-of-control financial sector. According to the IMF for instance, indirectly, UK economic output fell by 27% or £497bn as a result of the systemic crisis precipitated in 2007. Growth means more than protecting the profits of the privileged few in the financial sector. Casino banking may add numbers to GDP but it is of little value to the real economy and ordinary people's lives. An FTT could help rebalance finance in favour of the real economy.
The European Commission’s impact assessment, cited by Osborne and others, projects a worst-possible case 1.76% hit to long-term growth across the EU. If the FTT were designed in the way the rest of the document suggests, they conclude that a much lower figure is likely - perhaps as little as 0.53%. Even this fails to take in to account that FTTs would help stabilise markets by deflating the recent boom in high-frequency trading. By reducing risk and the cost of capital at the same time, FTTs would help bolster positive growth.
It is fundamentally a political choice by governments about which tax options are chosen. The UK is cynically arguing that an FTT could hit growth but has chosen to implement other taxes such as VAT which impact negatively on growth.
* A Financial Transaction Tax will hit savings, pensions or small businesses
The FTT's tax rate is set extremely low (an average rate of just 0.05%) precisely to avoid having an impact on pensions and savings that carry out very few transactions. Such a rate would hit high frequency casino trading which is a completely distinct area of banking. 50% of revenue from a Robin Hood Tax would be spent here in the UK helping to save jobs and protect ordinary families hit hard by the financial crisis.
The IMF has studied who will end up paying transaction taxes and has concluded that FTTs would in all likelihood be ‘highly progressive’. The customers of casino banking are high net worth individuals and financial institutions so it would fall on the richest segments of our economy and society to pay, in a similar way to capital gains tax. This is in complete contrast to VAT, which falls disproportionately on the poorest people.
* The UK government has committed to 0.7% GNI for international development so doesn't need to implement an FTT.
It is ironic that the UK, a world leader on aid, is blocking a wider agreement that could raise billions to help poor people overseas and closer to home. It is no excuse to let the financial sector off the hook because the UK government has already committed to spend 0.7% of GNI on international development. The Government is turning down billions in additional revenue that could help us meet not just our international development commitments, but those on climate change and closer to home much needed revenue could help protect services, ordinary families and jobs in the UK as well.
* Double Speak? The UK's position over the last few weeks
This is the strongest display of opposition to the Robin Hood tax from the Conservatives. Previous to this, Cameron and Osborne have both said they support the principles of the Financial Transaction Tax and would support it if implemented globally. Yet new information tells a different story; at the G20 we have reports of Cameron not pushing for international agreement, instead trying to block international progress. Contrary to his public statements a leaked letter sent by Osborne to a group of financial sector trade bodies assures them that “the necessary international consensus does not exist” to impose it. But he then goes further than his public stance revealing he has doubts whether a Financial Transaction Tax could work at all.
The Government's stance continues to protect the interests of the City of London. Last month, reports revealed that financiers and the City are putting significant financial resources into making sure politicians don't introduce further regulation, despite their broken promises on Project Merlin. Some of these resources are focused specifically against the introduction of a Financial Transaction Tax, notably by the British Bankers' Association who wrote an open letter to Osborne claiming that such a tax would damage what they regard as an 'efficient financial system'. This is simply the mafia that runs the casino complaining that their gambling activities may be curtailed. This is nothing to do with the real economy, or in fact the real world.
As pressure grows, internationally and domestically, the UK Government continues to actively block progress on the tax. With countries like America and Russia softening their position, the remaining blocking countries - the UK and Canada - are looking increasingly isolated. It could be designed to raise revenue in the UK to be spent by our Treasury on good causes at home and abroad. As Gates outlined, and as we have shown with our own existing Stamp Duty on shares – itself a form of Financial Transactions Tax – it would not have to be global to work. A group of leading nations, including the UK, could show the way.
Posted: 9 November 2011
Recommended citation: The Robin Hood Tax Campaign (2011) 'Protecting the City of London. Osborne blocks EU' progress on Robin Hood Tax', World Economy & Development In Brief, 9 November 2011, Luxembourg (www.wdev.eu)
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