A financial transactions tax just makes good business sense for Britain

Rather than refusing it to rebuild our casino banks, we should create something new and better.

According to Albert Einstein the definition of insanity is “doing the same thing over and over again and expecting different results”. Yet bolstered by today’s improving GDP figures, David Cameron’s government appears set on rebuilding the UK economy around the casino capitalists of the City of London. The financial crisis may have derailed the economy to the extent that as a country we’re still poorer than we were six years ago but let’s just put the old show back on the road again.

This attitude was exemplified by Boris Johnson’s speech to the British Bankers’ Association this week when he invited European banks to come to the UK to avoid the proposed European financial transactions tax (FTT, also knows as a Robin Hood Tax). Nevermind the fact that moving to London would not actually help them evade the tax, the message was clear: the UK wants the same as the financial sector, a return to business (and bonuses) as usual.

Thankfully, MPs on the Business, Innovations and Skills Committee today intruded into the debate calling into question the Government’s position. In their response to the Kay review of UK equity markets and long-term decision making, MPs not only called for the Government to get on with implementing the professor’s recommendations – including a review of merger and acquisition activity – but also called on Cameron and Osborne to think again about their opposition to the FTT.

Their argument does not rest on the moral imperative that the financial sector should repay the damage it has done – something even the Prime Minister and Chancellor are wary of disputing. Instead the Committee makes hard-headed economic arguments for an FTT - that it would curb damaging high frequency trading, the computer-driven casino capitalism that causes flash crashes. It is an argument I have made here previously.

The business case for an FTT is so strong that Vince Cable told MPs that “I am, in some ways, quite disposed to it”. But given the political capital George Osborne and David Cameron have invested in opposing the plans of 11 European countries to press ahead with an FTT, it is difficult to see this Government changing course.

That provides a real opportunity for Labour. Ed Miliband’s themes of "responsible capitalism" and "one nation" could have been adopted with the Robin Hood Tax in mind. What better way of cracking down on the "wild-west" excesses of the market that he condemned in his conference speech two years ago than by levying a tiny tax that will have negligible impact on long-term investment but make financial gambling via high-frequency trading unprofitable?

And what better way of showing that Labour is truly a "one nation party" than by making the Square Mile pay for the damage it has done to the whole of the British economy and at the same time make it less likely that it will be able to wreak such damage in future?

It is hard-headed economic arguments like these which have led the German finance ministry to champion the tax within Europe. And with 11 European countries – including the major economies of France, Germany, Italy and Spain – set to introduce a wide ranging FTT on shares, bonds and derivatives early in 2014, a future Labour government would hardly be leaping into the dark if they followed suit.

Miliband and his Shadow Chancellor Ed Balls have spoken warmly about the Robin Hood Tax and its potential to raise billions to tackle poverty at home and abroad. But like the Government, they have pretended that such a tax must be global (or at least have the support of the US) to work. Given the UK’s own FTT – the 0.5 per cent stamp duty on shares – raises about £3bn annually this is palpable nonsense. It is to be hoped that today’s dose of economic good sense from MPs will encourage them to be a bit bolder.

Not quite a casino bank… Photograph: Getty Images

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

Photo: Getty
Show Hide image

Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

0800 7318496