The Financial Transaction Tax (FTT) is being debated in two important fora this week – the meeting of Europe’s finance ministers on Monday and Tuesday, and the House of Lords Grand Committee today. The stark difference in attitude towards the FTT between Britain and key European nations cannot be more plain to see.
In Europe, at least 9 EU member states – including France, Germany, Italy and Spain – are moving forward on implementation of taxes on various forms of financial instruments including bonds and derivatives. So keen is France to press ahead, it is unilaterally applying an FTT to share transactions with President Hollande doubling the tax as one of his first measures as new incumbent in the Elysée. At the same time, smaller EU nations such as Hungary are exploring ways in which to both extract revenue and limit the corrosive activity of elements of the financial sector by introducing new transaction levies.
The direction of international travel is in favour of greater regulation and fairer taxation of the financial sector. Even financiers have been converted – breaking ranks in an unprecedented way with a letter in support of the FTT to G20 leaders signed by more than fifty of them last month, including John Fullerton, a former Managing Director at J P Morgan and Wallace Turbeville, a former Vice President at Goldman Sachs. Such figures are recognising in growing numbers that the type of highly technical, algorithmic based trading which merely latches onto market trends was not only a contributory factor in the last crash, but could potentially cause another if left unchecked. European leaders already recognise that action is needed, why not the UK?
Contrast their positive steps towards implementation of the FTT with the opposition of the UK government. On Wednesday peers will gather to review the conclusions of a recent Lords report entitled ‘Towards a Financial Transaction Tax?’ That report, mirroring the government line, argues that any FTT short of a worldwide tariff on financial transactions would not work. As well, it would see billions of pounds of revenue go from the UK to the EU budget. However, these arguments do not stack up.
Firstly, many FTTs of varying sizes already exist. In the United States, a very small FTT raises $1 billion a year to pay for the regulator, the SEC. By contrast, in Brazil they currently raise a grand total of more than $15 billion each year from a variety of transaction taxes. These examples of unilateral FTTs clearly illustrate that such a tax does not need to be global to work. Furthermore in the UK, we already have a modest FTT in place, in the form of the 0.5% stamp duty on the purchase of shares, which raises £3 billion annually. It is calculated that rolling this FTT onto bonds, derivatives and ultimately foreign exchange would raise an additional £20 billion of much needed revenue for the Exchequer.
Secondly, the FTT is not a “Brussels tax.” Revenue will go to national treasuries to do with as they wish, not to the EU budget. The £8.75bn worth of revenues expected from the forthcoming German FTTs will be up to Angela Merkel to spend, not José Manuel Barroso.
What we need now is a more constructive attitude from UK politicians in both houses towards a tax that has considerable merit. With a recent study by Stephany Griffith-Jones and Avinash Persaud indicating that the tax could bring economic growth of at least 0.25%, it is a policy that all parties should be taking seriously. Why should Labour forfeit a potential £20 billion of additional income due to pressure from, or deference to, the banking industry, when it desperately needs that revenue to protect public services such as health and education.
As Labour seeks to redefine itself after 13 years of government – showing it has a credible plan to deliver growth whilst not going cap in hand to the City – the FTT offers real potential to deliver a more responsible form of capitalism. The Tories – garnering 50% of their donations from the financial sector – are not keen to enter this territory. Both in terms of Labour’s electoral interest after the Libor and other banking scandals, and to ensure the party has a progressive yet practical mandate with which to govern after 2015, the party must get bolder on the FTT.
Lord Joel Joffe is a Labour Peer