The Staggers

The New Statesman’s rolling politics blog

UK to "resist" European plans for a Robin Hood tax

Britain looks set to scupper a financial transaction tax, saying it will unfairly affect London.

By Samira Shackle Published 29 September 2011 10:22

The UK government has reiterated that it will "resist" European plans to introduce a tax on financial transactions.

This comes after José Manuel Barroso, the European Commission president, unveiled the proposals as part of his annual State of the Union address in Strasbourg yesterday. He said that the tax could raise some €55bn (£50bn; $75bn) a year.

Under the proposals, the tax would be levied at a rate of 0.1 per cent on all financial transactions between institutions. Derivative contracts would be taxed at a rate of 0.01 per cent. Both parties would be charged, even if only one was EU-based.

It would be a popular measure with the public. A recent poll by Eurobarometer found that 61 per cent of Europeans support a financial transaction tax, including 65 per cent of Britons.

On Radio 4 this morning, Stuart Fraser of the City of London said that this would effectively be a "tax on London", as around 80 per cent of Europe's financial transactions come through the British capital. In the Financial Times, business groups such as the CBI have queued up to dismiss the plans, saying that they would simply divert transactions to Hong Kong and New York.

This is the line that the government has taken too. As I reported last month, the Treasury said it would not back such a tax unless it was adopted globally. Since global agreement is highly unlikely, the UK (which can veto it in the EU) could successfully scupper the tax. There is little doubt that the tax would be more successful if implemented across the world -- the European Commission concedes this -- but the UK government is not even willing to engage with the idea or seek global accord.

The BBC's business editor, Robert Peston, explains why the disproportionate effect on London might not necessarily be a bad thing:

Research by the Bank for International Settlements, the central bankers' central bank, provides a useful counterpoint. This demonstrates that countries with disproportionately large financial sectors, like the UK, have disproportionately small manufacturing sectors - because capital and talent tend to gravitate to the ostensibly big returns on offer in banks, hedge funds and so on, and because the exchange rate tends to rise to a level well above what's comfortable for exporters.

So, arguably, the British economy will not be rebalanced -- towards more making, and less financial engineering -- unless and until the City is less dominant. Which possibly means that a government committed to such rebalancing, as this one is, should not be quite so wary of a tax that would squeeze City profits.

Part of the thinking behind the tax is that it would force a culture change, limiting what Peston calls "deals that the world would be better off without". Unfortunately, it seems that the UK government is more concerned with defending a return to business as usual.

Tags: Tobin tax finance

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17 comments

Fri, 2011-09-30 23:01 — Eddy S (not verified)

transactions can be booked too easily in other jurisdications by global companies and banks are no different, especially as they invest heavily in IT and most banks in the city are foreign anyway there are only a few remaining british banks left.

one decent idea muted by the FT is a tax on actual instruments e.g. UK gov't debt regardless of where this is traded whether it is New York or Singapore we have the power on charging a small charge on buying UK Gov't debt but at the same time we probably don't want to discourage buyers of UK gov't debt either especially as we are running a massive deficit.

Thu, 2011-09-29 11:33 — Graham (not verified)

so according to the great Robert Peston, the best way to invigorate a declining manufactutring sector is to stifle every other successful business in the economy
Economics of the madhouse

Thu, 2011-09-29 11:40 — Lola (not verified)

It's not a 'Robin Hood' Tax. That's a foul slur on Mr Hood who fought an undemocratic and totalitarian and illegitimate government exemplified by the Sherriff of Nottingham, and alos took on the oligarchical monopolistic corporation of his day - the Church. He did not 'rob the rich' - he attacked the same problem that we have today - governments with very little democratic accountability and the cronyism of politically favoured corporations -the banks.

Thu, 2011-09-29 12:13 — Matt (not verified)

Barroso: 'This tax is to make sure the bankers give back to society'.

Translation: 'This tax is to make sure that we can fund the corpulent levels of institutional waste, huge bailouts, and the pensions of the European elites for decades to come'.

Oh what a mess.

Thu, 2011-09-29 12:14 — purpleline (not verified)

Unbelievable European socialists and the socialist mouthpiece 'I'm alright' Preston of the BBC think a Tax is the way to go.

Firstly all products sold to the retail consumer will rise as banks claw back the Tax.

Second, risk will be increased as banks may choose to build up bigger positions before executing trades.

Thirdly, we know it starts at 0.01 it will be increased to pay for other socialist programs.

This is an attack on London but more importantly Capitalist system. I am willing and I mean this, to lay my life down to sack Brussels over this move.

We must escape the Socialist EU to save England. Let the Socialist Scots & Welsh stay in EU and the money saved by England put into our defence budget to ensure the EU never attempts to take control over us.

Any socialists can move to Wales or Scotland or the EU.

Thu, 2011-09-29 12:34 — Sean O'Hare (not verified)

Unfortunately, it seems that the UK government is more concerned with defending a return to business as usual

Oh dear Samira! It would appear from earlier comments that not every NS website visitor agrees with you there.

Thu, 2011-09-29 13:03 — SonofBoudicca (not verified)

No taxation without representation, right? So when do we get a vote on Mr Barroso?

Thu, 2011-09-29 13:10 — jheath (not verified)

The IMF is very clear on the de-merits of a Tobin tax - it hits the poor, not the rich as it is a transactions tax, not a wealth or income tax. Even Barroso admits it is useless but he still supports it. Who voted for him?

Fri, 2011-09-30 10:49 — Awake!

Baroso probably raising this sceptre in anticipation of UK calls for more independance from EU on sovereignty in return for our cash...
Let's not forget, folks... whilst the outcome of the election was being debated for those few days back in UK, when we didn't know who was in charge, Osborne rand Darling and PLEADED not to sign up to a greek bailout. Darling signed as he left the building,his argument that the guarantees of all the european states would be enough to ensure the money would not be needed... this was at the same time as the other labour clown walked out joking there's no money left... Yeah, these guys really CARE about the working man

Thu, 2011-09-29 15:17 — Mike (not verified)

It's all very well taxing one part of the economy if you then use the revenues to encourage another part.
That IS rebalancing..
But toe use the revenues to fund another lot of economies leaves your economy much poorer. So you end up with a smaller successful biT AND NO MORE MONEY TO ENCOURAGE REBALANCING.

That is obviouse and yet the writer has not grasped it.

Kind of Economics at 14...

Which I am afraid is about the level of teh article.

Thu, 2011-09-29 15:23 — Ken Hall (not verified)

Peston cannot be serious, can he? Successive governments have devalued manufacturing in this country to allow the manufacturing capacity of the EU to be centralised in France and Germany. The financial industry has been centralised in the City of London and Frankfurt.

This has been the grand plan all along to prevent individual nation states being utterly self reliant in each industry, but have to rely on other nation states as a guarantee to stay within the union, eventually becoming a lock into the union.

He now seems to be supporting giving our last major economic industry away to the EU too, leaving this nation totally at the mercy of the EU for our survival. A vassal state utterly dependent upon the whims and vagaries of the EU Oligarchy. A treasonous betrayal of 1000 years of English law and custom.

Such traitorous treachery should be an imprisonable offence.

I am now honour bound to punch Mr Peston in the face upon the very next instance I meet him.

Thu, 2011-09-29 15:34 — Oliver Sawtell (not verified)

Not at all surprising to hear comments like Ken's, who clearly hasn't read history, nor does he understand the complex political structures of Brussels. Possibly a UKIP supporter, they usually don't do well on MENSA tests. A Tax on Banks at 0.001% netting 100BILLION Pounds is what we are talking about.. thats 10p in every £1000 made in the city.. you know what I'd be happier to see it at 80% of everything a banker earns directly and indirectly but 0.001% on every transaction is small change to all but the worst scourge banker (or nimby hobbit like Ken). As for 'giving Brussels' too much power, your forgetting we have elected representatives in Brussels some of whom are not neophytes of Murdoch's right wing rubbish. And who understand what Winston Churchill (remember him?) was trying to do when he helped formulate the EU - to keep the peace, in a peaceful way and to prevent another trans-european war, by having close political ties with the rest of europe.

Thu, 2011-09-29 16:31 — Awake!

Oliver
What do u think the margin is on each 'trade'. If u theoretically make 0.00005 bps, ure paying twice that in a new tax..
Rebalences the economy mr Peston- so his argument is that rebalencing can't occur cos everyone is dying to be in the city- not lack of investment, support and long term objectives by incumbent governements.
And lastly- this plan from the eurozone, in which UK definitely loses most, let's think about this. the eurozone political clowns have done their conkers with their silly idea, they can't fess up to the voters, so they look around and presto! evryone hates abanker, hates 'traders', and the money comes from the UK
What the government should be doing, and the labour party is standing firmly shoulder to shoulder against this- instead there will be infighting as the ships engineer pleads for sanity as the water threatens to pour over the first 2 bulkheads...
Dumbarse reds like the writer here, trying to make a political point or score, not even aware they are tying their own nooses... muppets.

Thu, 2011-09-29 17:49 — Stuart Eels (not verified)

Oliver Sawtell

Can't you make your points clear without being completely charless?

Why Britain shoulder £40 billion of this transaction tax while the rest of Europe pays £10 billion? Do you not think that this will result in real British jobs or don't you care?

You would be happier with it at 80%, so thats half of London unemployed then!

Thu, 2011-09-29 17:54 — Freeman (not verified)

UK want to avoid any Robin tax ?

First, we European, we should create this tax no matter what UK's government think.
Second, we should put UK out of EU and Schengen. I'm sure every Brits would agree. EU is hell, and everywhere else is perfect. You would be so better, so free out of EU ! :D

And then, we will create taxes at our borders, to avoid any of our Euro go in your "holy" City. You don't need our Euro, do you ? :D
You will be far better without.

Today, banksters are truly our enemies... we HATE them. And our biggest enemy in Europe is the City.

Choose your side. And then, assume your decision and its consequences. If you choose the City, you will be our enemy.

That's as simple as that.

Thu, 2011-09-29 18:34 — Simon (not verified)

Freeman. If only your Eurocrats would kick us out. There is a reason they won't and that is because they need our £ to keep the ship afloat.

Your masters are in thrall to the banks and need them to bail out their failed currency.

My side would be on free trade with the rest of the word and leave the Eurozone and especially the French to wallow in poverty once the Germans wake up an refuse to subsidise them anymore.