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

Getty
Show Hide image

Celebrate Labour's electoral success - but don't forget the working class

The shutting down of genuine, constructive debate on the left is the great danger we face. 

In the moment when the exit poll was released on 8 June, after seven weeks of slogging up and down the streets of Britain, dealing with scepticism, doubt and sometimes downright hostility, we felt a combination of relief, optimism, even euphoria.
 
This election broke wide open some assumptions that have constrained us on the left for too long; that the young won’t vote, that any one individual or political party is “unelectable”, that perceptions of both individuals, parties and even policies cannot change suddenly and dramatically. It reminded us that courage, ambition and hope are what’s needed and what have been missing from our politics, too often, for too long.
 
We have learnt to tread carefully and wear our values lightly. But in recent weeks we have remembered that our convictions can, as Jonathan Freedland once wrote, “bring hope flickering back to life” and meet the growing appetite for a politics that doesn’t simply rail against what is but aspires to build a world that is better.
 
In this election at least, it seems the final, anticipated fracture of Labour from its working-class base after Brexit did not materialise. Shortly before the snap election was called I wrote that while Brexit appeared to be Labour’s greatest weakness, it could just be our biggest strength, because: “consider what remain voting Tottenham and leave voting Wigan have in common: Labour… We will succeed if we seek the common ground shared by the decent, sensible majority, and more importantly, so will Britain.”
 
But consider this too. The Tories ran a terrible campaign. It was, without any doubt,the most inept, counter-productive campaign I’ve ever seen in British politics. The day their manifesto hit the headlines, even in our toughest neighbourhoods, we could feel change in the air. Arrogance is never rewarded by the British people and Theresa May has paid a price for it. Yet, despite a Tory manifesto that was a full, square attack on older people, the majority of over 65s still came out for the Tories.
 
And despite the growing relevance of freedom, internationalism and tolerance in an era characterised by Donald Trump and Vladimir Putin, the Liberal Democrats managed to become bystanders in the political debate. They stood on a platform that aimed to capture the support of those remain voters for whom Brexit is the major question, but neglected the rest. And they quite spectacularly failed to foresee that those who were intensely angered by May’s conversion to a little England, hard Brexit stance would vote tactically against the Tories. Over those seven weeks, they all but disappeared as a political force.
 
As Bob Dylan once said, "the times, they are a-changin" – and they will change again. The recent past has moved at extraordinary speed. The Brexit Referendum, the rise and retreat of nationalism, the election of Trump and his crushing unpopularity just a few months later, the reversal in fortunes for May and Jeremy Corbyn, the astonishing phenomenon of Emmanuel Macron and pro-European centrism, and the dramatic rise and sudden collapse of Ukip. Politics, as John Harris wrote last week, is now more fluid than ever. So now is the time, for hope yes, and for conviction too, but not for jubilation. We need some serious thinking. 
 
We should be cautious to rush to judgment. It is only two weeks since the exit poll sent shockwaves across the country. There is no comprehensive explanation for the multitude of motivations that delivered this election result and will not be for some time. But there are some early indictors that must make us think. 
 
After seven years of austerity, as John Curtice observes, the Tories made some of their biggest gains in some of the poorest areas of Britain. It is something I felt in all of the eight constituencies I campaigned in during the election. While the Labour vote rose significantly in towns like Wigan, so too did the Tory vote, despite little or no campaigning activity on the ground. As Rob Ford puts it, “Labour, founded as the party of the working class, and focused on redistributing resources from the rich to the poor, gained the most ground in 2017 in seats with the largest concentrations of middle-class professionals and the rich. The Conservatives, long the party of capital and the middle class, made their largest gains in the poorest seats of England and Wales… Britain’s class politics has been turned completely upside down in 2017”.
 
To acknowledge the growing, longstanding scepticism of many working-class men, and women, towards Labour in towns across England is not to take away from the hard work and drive of the activists, advisers and politicians that helped to fuel such a dramatic turnaround for Labour during the short campaign. To have won considerable gains in wealthier suburbs is no small achievement. 
 
But if the future of Labour lies in a coalition between middle-class young professionals and the working class, what is the glue that binds? While there is shared agreement about investment in public services, how are those interests to be squared on areas like national security and immigration? I believe it can and must be done, but – as I said to conference when I was first elected seven years ago - it will demand that we begin with the difficult questions, not the easy ones.  
 
Just a few days before the election, statistics were released that pointed to a collapse in trade union membership. What does the decline of an organised Labour movement mean for who we are and what we can achieve? These are not new questions. They were posed by Eric Hobsbawm in his brilliant lecture, "The Forward March of Labour Halted" in 1979 - a challenge laid down in the year I was born. Now, 37 years on, we are no further down the road to answering it. 
 
The most dramatic finding from this election was the support Corbyn’s Labour party appears to have won from middle-class, young professionals. They said he couldn’t do it and quite stunningly it seems they were wrong. But a ComRes poll last week caught my eye – by a large margin those 30-44 year olds would favour a new centre-ground political party over the current political settlement. In an election where we returned strongly to two-party politics, it appears they moved to us. But what would a dynamic and renewed Liberal Democrat Party, or a British En Marche do to our support base?
 
After a hellish two years we have learnt in Labour, I hope, that unity matters. The public and private anger directed towards each other, whether the Labour leadership, the parliamentary Labour party or elected councillors, is desperately damaging and its (relative) absence in the campaign was important.
 
But unity is not the same as uniformity, and while two weeks ago I felt there was a real danger of historic fracture, now I believe the shutting down of genuine, constructive debate on the left is the great danger we face, and must avoid. No one person, faction or party has ever had the monopoly on wisdom. The breadth of the Labour movement was and remains our greatest strength. 
 
Consider the Labour manifesto, which drew on every tradition across our movement and demanded that every part of the party had to compromise. Those broad traditions still matter and are still relevant because they hear and are attuned to different parts of Britain. Our country is changing and politics must catch up. The future will be negotiated, not imposed.
 
As we witness the age of "strong man" politics across the world, here in Britain our political culture has become angrier and more illiberal than at any time I can remember. The Brexit debate was characterised by rage, misinformation and a macho political culture that demanded that we abandon nuance and complexity, an understanding of one another and tolerance of different points of view.
 
But this is not where the future of Britain lies: it lies in pluralism. It lies in a politics that is nimbler, more fleet of foot, less constrained; a return to the great tradition of debate, evidence, experience and argument as a way to build broad coalitions and convince people; not shouting one another down, nor believing any of us are always right; an arena in which we listen as much as we speak; a political culture in which we are capable of forming alliances within and across party lines to achieve real, lasting change.
 
And ultimately that’s the prize: not just seek power but, to paraphrase a philosopher whose work inspired millions, in the end “the point is to change it”. We could sit tight in Labour and hope to see the current government fall apart. We might even inherit power, we could temporarily reverse some of the worst of the last seven years, but what then? If we have learnt anything from 13 years of Labour government it should be this: that to build lasting change is the hardest political task of all, and it requires now that we do not turn to the political culture, the tools or even the ideas of the past, but that we think hard about where the future of our movement and our country really lies. Now is not the time to sit back and celebrate. Now is the time to think.

 

Lisa Nandy is the MP for Wigan. She was formerly Shadow Secretary of State for Energy and Climate Change.

0800 7318496