It's time for Osborne to don tights and channel Hood
The tobin tax, the Robin Hood tax, the far more economically accurate financial transaction tax, call it what you like, it is, potentially, a very good idea indeed.
A tax on financial transactions is not the silver bullet to solve all of our economic woes, it would raise around £20bn a year in the UK which isn’t insignificant but is not going to reverse the need for austerity.
Nonetheless the financial sector was a major contributor to the global recession and the major reason why UK government debt is so high. It is fair and just that a tax which would help to reduce future risky speculation and offset some of the debt the government have taken on in the name of financial stability be applied to the financial sector.
It is not fair or just that the public take the pain of government cuts whilst the city continues to pay itself extortionate bonuses after receiving state support. Whilst ordinary people face job cuts, wage squeezes and rising inflation the tax, a fraction of 1% on transactions, should not be seen as something to thrash against but rather as the sectors social responsibility.
“Osborne, Osborne and his merry men”, yes, the tune doesn’t really work but whilst I imagine some of my political friends might get a kick out of seeing the Chancellor in green tights, a Robin Hood tax would give the man who holds the purse strings the chance be populist and simultaneously a deficit and income tax cutter.
An FTT should be used first and foremost to rebalance the tax burden. The real tax on jobs is income tax and the coalition should set out its marker early by using the revenue to complete the rise in the tax allowance to £10,000 and dropping the top rate of tax back to 40%. The coalition needs to be on the side of the hardest hit workers earning less than the average wage as well as on the side of aspiration.
It’s not as if the UK doesn’t already have transactional taxes, Stamp duty, a tax incurred when buying shares and securities, has been in place for decades. In the context a FTT is merely an extension of that concept to the wider financial sector.
The government is right when it says a tax must be agreed globally. Making London uncompetitive against New York, Hong Kong or Singapore to satisfy public demands for banker bashing would be madness.
It is however time Osborne and co started working for that global agreement rather than standing passively by for someone else to make the argument. The UK should take the lead and raise discussion on a transaction tax at this weekend’s G20 meeting to get the ball rolling on a global agreement.
An EU specific tobin tax would not be workable and must be rejected. It would disproportionately hit the city of London, where the commission expect 80% of the income to originate. Nor should the money go to supplement the European Union budget, its time the European Parliament lived within its means and stopped voting itself budget increases when every member state is cutting back. The UK must veto any EU specific tax.
The coalition has everything to play for and little to lose in supporting a financial transaction tax. If agreement can be global it will not affect London’s status as the premier financial centre and would have popular support throughout the UK. For the past 4 years banks have been privatising profits and socialising losses. Its time they paid their fair share.