Why Osborne is wrong on the Robin Hood Tax

The Chancellor has framed the debate as an EU attack on British prosperity. This does not stand-up.

George Osborne ripped back his well maintained veneer of ambivalence towards the Robin Hood Tax this week, revealing his true identity as the protector of the privileged few in City.

Having been given the advice of the IMF, Bill Gates and the European Commission who have all shown Financial Transaction Taxes (FTTs) are feasible, Osborne chose to ignore them, declaring instead it would be "economic suicide". But while his attempt to frame the debate as an EU attack on British prosperity may have superficial appeal -- John Major has made a similar attack today, claiming in the Guardian that an FTT would fan the flames of Euroscepticism -- it does not stand-up to economic scrutiny.

Let's start with the growth argument. Earlier this year, Osborne increased VAT (the transactions tax we all pay in the real economy) by 2.5 per cent to 20 per cent. VAT increases push up prices and are certainly not good for growth and they hit the poorest twice as hard as the rich. Yet now Osborne is casting a 0.05 per cent tax on the financial transactions of investment banks and hedge funds as bad for growth. The irony is of course, that as the IMF pointed out, financial transactions are VAT exempt.

The fact that a Robin Hood Tax would raise billions to protect jobs, services and the poorest was handily ignored. So too was the fact it would rein in rogue elements of the financial sector responsible for a crisis that will, according to the Bank of England, ultimately cost the UK at least £1.8 trillion and as much as £7.4 trillion in lost GDP. The biggest threat to our long term growth is surely an unrestrained financial sector and not a 0.05 per cent tax on their transactions. Any job losses are likely to occur in the exclusive corners of the investment banks a million miles away from high street banking.

Osborne's claim that not a single bank would pay this tax is plain wrong. The bit he did get right is that banks as intermediaries would not pay the tax, but the parties initiating the trades would. So who are initiating the trades? Er, it's the banks. And other financial institutions such as hedge funds who represent high net worth individuals and the richest segments of society. It's why the IMF has said an FTT would in all likelihood be "highly progressive": being paid by those most able to afford it.

More surprising than Osborne's offensive has been Vince Cable's amazing transformation. Cable himself has on a number of occasions supported the Robin Hood Tax, it's even in the Liberal Democrat manifesto. Until Wednesday that is, when he described it as a "tax on Britain", seemingly conflating the financial sector with the UK as a whole.

Worse still, Cable resorted to citing the infamous Swedish FTT from the 1980s. Focusing on this example, unique in its bad design, whilst omitting to mention the Stamp Duty on UK shares which successfully raises the Exchequer more than £3 billion a year, is disingenuous at best. It's a bit like showing us a picture of a square-wheeled bike as evidence that all bicycles are flawed, having just arrived by bike. The key to the Stamp Duty's success is the way it is levied; wherever in the world a UK share is traded - London, New York or the Cayman Islands - the tax still has to be paid.

Osborne and Cable were right about one thing however; no one wants all this money to disappear into the European coffers. A Robin Hood Tax has received such massive support -- from the UK public (who back it by two to one), the Archbishop of Canterbury, the Vatican and millions around the world -- not just because it would curtail casino capitalism but also because it would help tackle poverty and climate change at home and abroad.

Thankfully, the threat of co-option into a "Brussels tax" is overblown. As the Germans recently pointed out, each country would collect the tax nationally. Our campaign wants to see half the money spent helping poor countries and half (that's billions of pounds) spent protecting schools and hospitals, teachers and nurses at home. So, far from the size of the UK's financial sector meaning we have the most to lose from an FTT, we have the most to gain.

By ignoring the positives and exaggerating the negatives the government is compiling themselves a dodgy dossier of reasons not to back the Robin Hood Tax. In doing so they risk putting themselves at odds with public opinion and international momentum behind ensuring the financial sector pays its fair share.

Simon Chouffot is the Robin Hood Tax campaign's spokesperson

Simon Chouffot is a spokesperson for the Robin Hood Tax campaign and writes on the role of the financial sector in our society.

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.