Andrew Goodall reports on growing support for the idea of a tax on financial transactions
The Robin Hood Tax campaign has just completed a three-week tour of 15 UK cities. Campaigners, committed to ‘reducing poverty and tackling climate change by taxing financial transactions’, claim to have the support of President Sarkozy of France and Chancellor Merkel of Germany, FSA Chairman Lord Turner and the billionaire investors George Soros and Warren Buffett.
The campaign also claims the support of more than 115 organisations, including Oxfam, Barnardo’s and Friends of the Earth, ‘all the major trade unions’ and faith organisations such as the Salvation Army. Almost a quarter of a million people follow the campaign’s Facebook page.
Last month, a thousand economists from 53 countries signed a letter backing a Robin Hood tax. Professors from many of the world’s leading universities signed the letter, delivered to G20 finance ministers, campaigners said. Signatories included Jeffrey Sachs, Director of the Earth Institute, Columbia University and special adviser to the UN Secretary-General Ban Ki Moon, and Dani Rodrik, Professor of International Political Economy at Harvard.
‘The dangers of unregulated finance’
‘This tax is an idea that has come of age,’ the letter said. ‘The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society. Even at very low rates of 0.05% or less, this tax could raise hundreds of billions of dollars annually and calm excessive speculation. The UK already levies a tax on share transactions of 0.5%, or ten times this rate, without unduly impacting on the competitiveness of the City of London.’
Sarkozy has commissioned Bill Gates to examine options for funding development. ‘Staff from the Gates Foundation have been shuttling between G20 capitals trying to muster support for a tax, which could be imposed by a small group of countries if worldwide agreement proves impossible,’ The Guardian reported on 13 April.
A European Commission consultation on policy options including a financial transactions tax (FTT) closed on 19 April, and the EC is now carrying out an impact assessment.
The ICAEW Tax Faculty has endorsed the comments of the Fédération des Experts-Comptables Européens (FEE), of which the Faculty is a member. The FEE has questioned ‘whether taxing one specific sector – no matter which sector – would be in line with the fundamental principles of taxation’. But the Faculty accepts that ‘changes to the existing financial sector taxation regime may be necessary following the recent global and financial crisis’.
A month earlier, MEPs voted in favour of resolutions calling for the development of a ‘low-rate’ FTT. ‘If imposing this tax worldwide proves too difficult, then the EU should impose it at European level,’ said a resolution on innovative financing to fund international development.
A sensible idea?
There is no doubt that calls for an FTT have won widespread support. But is the idea a practical and sensible one? This was the question addressed in a debate held last month at St Paul’s Cathedral by St Paul’s Institute, The Salvation Army, CAFOD and Tearfund. The speakers included Baroness Williams of Cosby and the ICAEW’s Chief Executive, Michael Izza.
Michael Green, an independent economist and writer, told the audience that he was ‘deeply disturbed by the Robin Hood Tax’. He was ‘pretty certain’ that the tax would land on ‘you and me and all the other customers of banks’. There was evidence, he said, that transaction taxes increased volatility. His greatest concern was that the proposal was a ‘distraction from the fundamental reform needed to global capitalism’.
But Shirley Williams spoke of the growing and ‘huge’ inequalities around the world. Poor countries are making very little progress, she said, and people are still living in intense poverty. A Robin Hood tax would pay for ‘all our aid systems’ and it would pay for immediate disaster relief, she added.
A currency transaction tax
Izza chaired an international committee of experts which examined the case for financial levies last year. The committee, whose members participated in a personal capacity, reported to the Taskforce on Financial Transactions for Development, which was formed by the Leading Group on Innovative Financing for development. The Leading Group is ‘an informal forum composed of 60 states, the main international organizations and NGOs from every continent’.
The stated aim of the report, titled ‘Globalising Solidarity: The Case for Financial Levies’, was to address ‘a forgotten financial crisis: the vast shortfall in finance required to meet international development and environmental commitments’. The committee linked that funding crisis directly to the ‘global solidarity dilemma’.
‘Put simply, the growth of the global economy has not been matched with effective means to levy global economic activity to pay for global public goods,’ it declared. ‘If the global community fails to fund the required mitigative and adaptive measures, we face a shared risk of global economic, financial, social and environmental instability, which would undermine the foundations of globalisation.’
The report concluded that a global single currency transaction tax (CTT) – whose proponents seek to differentiate it from the original Tobin Tax idea – would be the most appropriate financing mechanism for global public goods. The implementation of a global CTT is ‘technically and legally feasible’, it said.
The feasibility of a broad-based FTT applying to nearly all financial transactions ‘such as futures and options as well as bonds, equities and commodities’, however, was uncertain. ‘The FTT has the clear advantage of comprehensiveness, so that the revenues raised could be very high, but avoidance could be difficult to cope with,’ the committee found.
It is ‘very likely’, Izza said, that the people bearing a CTT would be the people engaging in the foreign exchange trading – so it would be ‘passed on to customers’. A levy of half of one basis point (or 0.005%) would be £5 – ‘not a great deal of money’ – on a transaction of £100,000. But it could raise US $25-30 billion a year.
The idea is being taken forward by the French government, and President Sarkozy plans to put it on the G20 agenda later this year, Izza said. But politicians in the UK are ‘dead against it’.
Attempts to avoid a CTT are always a possibility, given the value of transactions, he said. But he added: ‘I think if you’re going to introduce a levy at a time when the finance sector realises that it hasn’t done the global economy any favours, now is the time.’
Izza went on to put forward an idea of his own. Foreign exchange daily trading volumes around the world hit US $4.3 trillion in the last quarter of 2010, he said. In contrast, the London Stock Exchange’s daily trading volumes are about £5 billion.
There is a very strong case, he argued, for insisting that foreign exchange is traded over a mandatory, central platform. The price of participating would be half of one basis point. This would, Izza added, be ‘a very small sum of money to give regulators and everyone confidence that this is not a market that is going to explode’, and it would provide a steady stream of income ‘to be used for social good’.
A ‘strong lobby’
HM Treasury has recognised that there is a ‘strong lobby’ for an FTT and said last August that it was right for banks to ‘make a contribution to the public purse’. The International Monetary Fund’s report, ‘A Fair and Substantial Contribution by the Financial Sector’ commissioned by the G20, had endorsed the type of bank levy model announced in the June 2010 Budget, the Treasury said.
That report also endorsed a Financial Activities Tax (FAT) levied on certain profits and remuneration, and the UK government was examining the costs and benefits of a FAT and ‘monitoring developments’ in that area. But the IMF report had not offered an endorsement of an FTT, the Treasury added. ‘Clearly there would need to be further discussion around whether the FTT model offers a stable and efficient mechanism.’
Andrew Goodall reports on growing support for the idea of a tax on financial transactions
The Robin Hood Tax campaign has just completed a three-week tour of 15 UK cities. Campaigners, committed to ‘reducing poverty and tackling climate change by taxing financial transactions’, claim to have the support of President Sarkozy of France and Chancellor Merkel of Germany, FSA Chairman Lord Turner and the billionaire investors George Soros and Warren Buffett.
The campaign also claims the support of more than 115 organisations, including Oxfam, Barnardo’s and Friends of the Earth, ‘all the major trade unions’ and faith organisations such as the Salvation Army. Almost a quarter of a million people follow the campaign’s Facebook page.
Last month, a thousand economists from 53 countries signed a letter backing a Robin Hood tax. Professors from many of the world’s leading universities signed the letter, delivered to G20 finance ministers, campaigners said. Signatories included Jeffrey Sachs, Director of the Earth Institute, Columbia University and special adviser to the UN Secretary-General Ban Ki Moon, and Dani Rodrik, Professor of International Political Economy at Harvard.
‘The dangers of unregulated finance’
‘This tax is an idea that has come of age,’ the letter said. ‘The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society. Even at very low rates of 0.05% or less, this tax could raise hundreds of billions of dollars annually and calm excessive speculation. The UK already levies a tax on share transactions of 0.5%, or ten times this rate, without unduly impacting on the competitiveness of the City of London.’
Sarkozy has commissioned Bill Gates to examine options for funding development. ‘Staff from the Gates Foundation have been shuttling between G20 capitals trying to muster support for a tax, which could be imposed by a small group of countries if worldwide agreement proves impossible,’ The Guardian reported on 13 April.
A European Commission consultation on policy options including a financial transactions tax (FTT) closed on 19 April, and the EC is now carrying out an impact assessment.
The ICAEW Tax Faculty has endorsed the comments of the Fédération des Experts-Comptables Européens (FEE), of which the Faculty is a member. The FEE has questioned ‘whether taxing one specific sector – no matter which sector – would be in line with the fundamental principles of taxation’. But the Faculty accepts that ‘changes to the existing financial sector taxation regime may be necessary following the recent global and financial crisis’.
A month earlier, MEPs voted in favour of resolutions calling for the development of a ‘low-rate’ FTT. ‘If imposing this tax worldwide proves too difficult, then the EU should impose it at European level,’ said a resolution on innovative financing to fund international development.
A sensible idea?
There is no doubt that calls for an FTT have won widespread support. But is the idea a practical and sensible one? This was the question addressed in a debate held last month at St Paul’s Cathedral by St Paul’s Institute, The Salvation Army, CAFOD and Tearfund. The speakers included Baroness Williams of Cosby and the ICAEW’s Chief Executive, Michael Izza.
Michael Green, an independent economist and writer, told the audience that he was ‘deeply disturbed by the Robin Hood Tax’. He was ‘pretty certain’ that the tax would land on ‘you and me and all the other customers of banks’. There was evidence, he said, that transaction taxes increased volatility. His greatest concern was that the proposal was a ‘distraction from the fundamental reform needed to global capitalism’.
But Shirley Williams spoke of the growing and ‘huge’ inequalities around the world. Poor countries are making very little progress, she said, and people are still living in intense poverty. A Robin Hood tax would pay for ‘all our aid systems’ and it would pay for immediate disaster relief, she added.
A currency transaction tax
Izza chaired an international committee of experts which examined the case for financial levies last year. The committee, whose members participated in a personal capacity, reported to the Taskforce on Financial Transactions for Development, which was formed by the Leading Group on Innovative Financing for development. The Leading Group is ‘an informal forum composed of 60 states, the main international organizations and NGOs from every continent’.
The stated aim of the report, titled ‘Globalising Solidarity: The Case for Financial Levies’, was to address ‘a forgotten financial crisis: the vast shortfall in finance required to meet international development and environmental commitments’. The committee linked that funding crisis directly to the ‘global solidarity dilemma’.
‘Put simply, the growth of the global economy has not been matched with effective means to levy global economic activity to pay for global public goods,’ it declared. ‘If the global community fails to fund the required mitigative and adaptive measures, we face a shared risk of global economic, financial, social and environmental instability, which would undermine the foundations of globalisation.’
The report concluded that a global single currency transaction tax (CTT) – whose proponents seek to differentiate it from the original Tobin Tax idea – would be the most appropriate financing mechanism for global public goods. The implementation of a global CTT is ‘technically and legally feasible’, it said.
The feasibility of a broad-based FTT applying to nearly all financial transactions ‘such as futures and options as well as bonds, equities and commodities’, however, was uncertain. ‘The FTT has the clear advantage of comprehensiveness, so that the revenues raised could be very high, but avoidance could be difficult to cope with,’ the committee found.
It is ‘very likely’, Izza said, that the people bearing a CTT would be the people engaging in the foreign exchange trading – so it would be ‘passed on to customers’. A levy of half of one basis point (or 0.005%) would be £5 – ‘not a great deal of money’ – on a transaction of £100,000. But it could raise US $25-30 billion a year.
The idea is being taken forward by the French government, and President Sarkozy plans to put it on the G20 agenda later this year, Izza said. But politicians in the UK are ‘dead against it’.
Attempts to avoid a CTT are always a possibility, given the value of transactions, he said. But he added: ‘I think if you’re going to introduce a levy at a time when the finance sector realises that it hasn’t done the global economy any favours, now is the time.’
Izza went on to put forward an idea of his own. Foreign exchange daily trading volumes around the world hit US $4.3 trillion in the last quarter of 2010, he said. In contrast, the London Stock Exchange’s daily trading volumes are about £5 billion.
There is a very strong case, he argued, for insisting that foreign exchange is traded over a mandatory, central platform. The price of participating would be half of one basis point. This would, Izza added, be ‘a very small sum of money to give regulators and everyone confidence that this is not a market that is going to explode’, and it would provide a steady stream of income ‘to be used for social good’.
A ‘strong lobby’
HM Treasury has recognised that there is a ‘strong lobby’ for an FTT and said last August that it was right for banks to ‘make a contribution to the public purse’. The International Monetary Fund’s report, ‘A Fair and Substantial Contribution by the Financial Sector’ commissioned by the G20, had endorsed the type of bank levy model announced in the June 2010 Budget, the Treasury said.
That report also endorsed a Financial Activities Tax (FAT) levied on certain profits and remuneration, and the UK government was examining the costs and benefits of a FAT and ‘monitoring developments’ in that area. But the IMF report had not offered an endorsement of an FTT, the Treasury added. ‘Clearly there would need to be further discussion around whether the FTT model offers a stable and efficient mechanism.’
