Britain has vowed to fight European plans for a tax on financial transactions. At a summit in Paris on Tuesday, Nicolas Sarkozy and Angela Merkel surprised other European leaders by calling for a tax that would be applied to deals in shares, bonds, and derivatives.
Campaigners have been calling for the so-called Robin Hood tax for many months. A European Commission paper drawn up this year suggested that a tax of 0.1 per ecnt on stocks and bonds, coupled with a 0.01 per cent levy on derivatives deals, could raise between €31 billion and €50 billion each year.
The idea of a tax on financial transactions was pioneered by the American economist James Tobin but struggled to gain traction during the neoliberal dominance of the 1980s. The idea was mooted by Gordon Brown back in 2009, but he failed to gain significant support for it.
One of the main challenges of introducing a Tobin tax is reaching international agreement. Referring to this latest proposal, a Treasury spokesman said: "Any financial transaction tax would have to apply globally -- otherwise the transactions covered would simply relocate to countries not applying the tax."
Implementing the tax across Europe would go some way towards achieving this; but such a move would require the unanimous approval of all 27 of the EU's member states, and is as such unlikely.
This is a shame. The tax would reduce the excessive risk-taking that brought the world's financial system to its knees. Campaigners also estimate that a small tax could raise billions without having a negative impact on the prosperity of the sector.
Support has come from some unexpected places. In August 2009, Lord Turner, the chairman of the Financial Services Authority, suggested that a tax on financial transactions could limit the money available for bonuses and added that it would be "a nice sensible revenue source for funding global public goods".
However, the British government is clearly not interested in even exploring the option of seeking consensus on the tax. When a financial transaction tax was included in the European Commission's seven-year plan at the end of June, Downing Street instantly dismissed the proposal as "completely unrealistic". José Manuel Barroso, president of the European Commission, responded saying: "Some are saying no before they've studied the proposal which was only finalised a few hours ago ... That doesn't fit with seriousness and credibility."
Predictably, shares in backs and stockbroking firms fell with the news. Yet this is no reason for capitulation. The City has called the shots for too long, with a return to business as usual raising the spectre of another financial crash. It is a shame that Downing Street and the Treasury are so concerned with defending the status quo, rather than looking at options for substantive, long-term change.
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