A Robin Hood Tax will stop the machines wiping out the market

A small tax on each transaction will stop pointless yet risky high-frequency trading.

From Terminator to the Matrix, our fear that humanity may be supplanted by the machines we create has helped Hollywood make mega-bucks. But while Arnie’s cyborg killing machine and the Neo’s alternative reality remain firmly in the realms of science fiction, our financial sector’s love of a fast buck is leading us to cede control of markets to computers with sometimes disastrous consequences.

The extent to which financial markets are now dominated by computer-driven high frequency trading was revealed again last week, when Knight Capital, a leading New York trading firm made a mistake in its computer programming. The rogue programme swamped the stock market with errant trades, cost the firm $440 million and put the future of the firm in jeopardy.

So what? I hear you ask. Why should we care if a firm of traders loses millions because they rushed out a new computer programme before it was ready?

The fact is that beyond acting as a casino for traders to make or lose fortunes, financial markets are crucial to the functioning of the global economy. They are supposed to allocate resources efficiently and help firms raise capital and manage risk. When things go wrong, as in the crisis of 2008, the consequences for the real economy can be devastating.

A growing number of economists and financial experts – including more than 50 financiers who wrote a recent letter to David Cameron and other world leaders – are warning that unchecked high-frequency trading undermines markets’ economic efficiency and risks disaster. In May 2010, the most infamous "flash crash" dragged the Dow Jones index of shares down nine per cent with more than half the fall happening in just seven minutes. Shares in Accenture plunged from $40 per share to just $0.01, almost wiping out the value of the company.

High frequency trading (HFT) conducted may now account for more than three-quarters of all equity deals in the UK. When you consider that this sort of trading, managed by computers according to complex algorithms, was almost unheard of seven years ago, it is hard to avoid the conclusion that traders have been competing in a technological arms race that has left regulators floundering.

So what can be done? As anti-nuclear campaigners have discovered, it is not possible to un-invent a technology once the genie has left the bottle. But fortunately this is not necessary. High-frequency trading is only profitable because of the sheer volume of trades carried out; the profit margin on each trade is incredibly low.

A tiny tax of a fraction of a percent on each transaction would curb the worst excesses of this cyborg-style casino capitalism, while having little effect on long-term investments such as pensions where trades are carried out far less frequently.

European leaders are working towards such a tax – covering stocks, bonds and derivatives – but the UK government has chosen to side with City interests rather than back the efforts of Germany, France, Spain, Italy and others to make finance work in the interests of society rather than the other way around.

UK opposition to the tax, based as it is on the claim that such taxes have to be global to work, is somewhat ironic. The UK already has an FTT on shares, known as the Stamp Duty, which at 0.5 per cent is many times larger than the proposed European tax (0.1 per cent for shares and bonds, 0.01 per cent for derivatives). The problem is that banks, hedge funds and other high-frequency traders avoid the stamp duty by trading in derivatives.

Extending the UK’s existing FTT to derivatives and bonds would not only "throw sand in the wheels" of HFT and therefore increase stability in financial markets and the wider-economy; it would also raise billions in revenue – the reason the Robin Hood tax campaign is backed by almost 120 organisations from Oxfam to the TUC and by global figures such as Kofi Annan and Bill Gates.

Despite avoidance, the UK Stamp Duty raise £3bn a year. A full-blown FTT could raise as much as £20bn – money that could be used to help those hit by the economic crisis at home and abroad and to meet the UK’s obligations to help poor countries cope with climate change.

It can be done. The UK’s Stamp Duty is one of 40 or so FTTs that already exist around the world. Hong Kong has introduced an FTT on derivatives precisely to curb the excess of computer-driven trading. Charles Li, Chief Executive of the Hong Kong Stock Exchange, says it "effectively limits high frequency trading, just like a highway with many toll booths limits speeding."

By rejecting a broader FTT, the UK government is making its own bet on the markets. It is accepting instability and forgoing much needed revenue in the hope the City’s casino capitalism will help drive recovery from recession.

It is a risky bet. As Andrew Haldane, Executive Director of Financial Stability at the Bank of England has put it:

"Grit in the wheels, like grit on the roads, could help forestall the next crash."

"Whoa" ~ Neo, The Matrix. Do we all fear that machines will supplant us?

Jon Slater is a Senior Press Officer for Oxfam and a spokesperson for the Robin Hood Campaign

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Ukip's "integration agenda" is another lurch away from the mainstream

Ukip's only chance of survival is on the nativist fringe. It won't be a happy - or successful - existence. 

After Ukip leader Paul Nuttall failed to steal a famous by-election victory in Stoke-on-Trent, his party’s militant tendency offered a prompt and simple diagnosis: the party was just too nice.

Two months on, with Nuttall now pledging to ban the burqa, sharia courts, new Islamic schools, subject girls from at-risk backgrounds to yearly female genital mutilation checks and make race an aggravating factor in some offences, they are unlikely to making those same complaints. Of the many criticisms one can make of the controversial policy blitz, a surfeit of niceness isn’t one of them – even if Nuttall is comparing himself to Gandhi. But what explains Ukip’s lurch deep into Breitbart territory – and what does it mean for the future of the party?

It’s tempting to chalk this one up as a victory for the hardliners who derided Nuttall – who, absurd though it seems now, was Ukip’s unity candidate – and his attempts to court women voters with a softer, “Nicekip” platform. It’s true that Douglas Carswell and Mark Reckless, loathed by the fags-and-flags wing of the party for their wet anti-Faragism and prim sensibilities, are safely gone. Liberated from the strain of, erm, having an MP, the true believers have taken back control.

That neat analysis quickly falls down when one takes a look at the chippiest defenders of Ukip’s new “integration agenda”: Suzanne Evans and Patrick O’Flynn. Once the pair were at the vanguard of the push to unseat Farage and chart a friendlier tack into Tory seats in the Shires. Now they try and spin policies that could be justly criticised with a favourite Carswell slur – “ugly nativism” – as a sort of noble muscular secularism. That they of all people are endorsing the new line underlines just how much trouble Ukip are in. Deprived of their ownership of Brexit, the party has little, if anything, left to offer the political mainstream.

The consequences have been felt more keenly inside the party than in the country, where Ukip has plunged to below 5 per cent in some polls. Plenty would argue that the party – even at their high watermark around 2014 – never operated within the mainstream currents of political thought anyway, instead dragging the Tories to the right. But it was always an uneasy and at times barely coherent coalition between the authoritarian and libertarian right, united only by their rejection of Europe. For the latter, Ukip isn’t about opposition to the sensibilities of polite society but compatibility with them. Theirs is a focus on grammar schools, hard graft and flat taxes, not smearing Romanians and hanging child murderers.

Whatever the likes of O’Flynn and Evans say, though, Ukip has now ceded that libertarian ground it once had claim to. Disgruntled and departed Kippers point to Nuttall’s loss in Stoke-on-Trent Central as the reason why.

“Since the focus on the EU has gone, and after the election in Stoke, there have been people within the Ukip NEC trying to drive the party towards the far-right,” says Tariq Mahmood, a practicing Muslim and self-styled libertarian who stood for the party in neighbouring Stoke-on-Trent South in 2015. He has since joined the Conservatives, and complains that efforts to court the aspirational middle classes and British Muslims (among whom he says Ukip are now “100 per cent” finished) have been jettisoned in favour of what an essentially nativist platform. While Ukip stress that their beef is with cultural practices and not Islam, Mahmood believes that argument is a mere figleaf - and Ukip, he says, know the distinction will be lost on many people. 

“It was an uphill struggle even previously to try to persuade individuals that we were a libertarian party and that we were not hostile to any individual belief,” he adds, ruefully. “Now, with what Peter Whittle and Paul [Nuttall] have said on integration, and with the prevailing mood with the NEC, the strategy seems to be to create division.”

The logic behind this ideological retrenchment is clear enough. Though Ukip stood in 624 seats at the 2015 election, insiders acknowledge that they are unlikely to reach anywhere near that total this time. Its chances of winning even one seat are perilously slim, as is painfully clear from Nuttall's prevarication as to whether he'll stand or where exactly. Resources will instead be poured into a handful of target seats that broke heavily for leave last June, and the party’s (white) core demographic courted much more ruthlessly. 

But those resources, historically scant anyway, have been depleted by its rightward lurch: both Mahmood and Owais Rajput, a former parliamentary candidate in Bradford East, speak of a flight of Asian members from the party. “There’s nothing left for me, other than to resign. It’s not only me – there are lots of other British citizens of Muslim faith who are following me as well,” he told me on the day Ukip dropped its new policies. “Their policy, long-term, is to try to create division in local communities, which is very, very dangerous.”

Both agree that Ukip’s future is as an ethnic nationalist party, which Nuttall and those around him have vigorously denied. But if that is the party’s strategy, it’s a witless one. Ukip has already swallowed most of those votes already, as the decline of the British National Party shows, and the electoral ceiling for those politics is a low one. The party may well tighten its grip on its small demographic core, but will hasten the flight of softer members and voters to the Tories.

Its breakneck change of pace will also bodes ill for its survival as a cohesive fighting force. There will inevitably be further tension among its febrile cohort of elected politicians. Nuttall’s foreign affairs spokesman, West Midlands MEP Jim Carver, this week resigned his post in protest at the burqa ban proposal (“I’m an old liberal,” he told me. “You’ve got to have that freedom of choice.”). He insists he won’t be quitting, and likened Ukip’s internal wrangles to those in other parties. “What you’ve got to is call out people you disagree with,” he said. “Look at the stick that people like Tom Watson is getting from Momentum! This isn’t just happening in Ukip. There’s a tug of war going in all political parties.”  

But Carver is a Ukip member of abnormal vintage, having joined the party in 1996. For others the allegiance cannot and will not hold as the party’s public face gets uglier and its electoral positioning even more uncompromising.  As the exodus of its 2015 supporters to the Tories shows, Ukip’s electoral cachet is a much more ephemeral thing than the parties of old. Senior figures protest that policing Brexit remains key to its policy platform.

Its new strategy underlines how the party cannot remain a broad church defined entirely by its opposition to Europe. “All I know,” Carver told me, “is that I’ve got to be true to my principles”. Recent events prove for most of the wetter wing of his party, that will mean leaving.

Patrick Maguire writes about politics and is the 2016 winner of the Anthony Howard Award.

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