Osborne will score a financial own-goal tomorrow

The Chancellor, in turning down the chance to implement a Financial Transactions Tax, will cost the UK dearly.

A fiscal measure that could raise £8bn, boost GDP by 0.25 per cent, provide vital funds for job-creation, infrastructure projects and poverty reduction, calm excessive speculation and reduce the regularity of financial crashes would seem like a no-brainer for a Chancellor. Struggling to reduce the deficit and bring public finances under control, George Osborne is set to score an own goal by refusing to sign up for the Financial Transaction Tax (FTT) which is rapidly becoming a reality in Europe.

Twelve European countries, including the big economies of Germany, France, Italy and Spain, have agreed to a small transaction tax of 0.1 per cent on equities and bonds and 0.01 per cent on derivatives. The initiative, which could generate €37bn per year, is expected to be given the green light by the European Parliament on 12 December.

The UK government’s reasons for rejecting the FTT are flawed on many counts. The Chancellor stubbornly clings to the argument that the FTT must be global to work. This ignores the fact that over 40 countries including some of the world’s leading financial centres and dynamic economies, have successfully implemented FTTs.

Hong Kong raises £1.7bn a year through taxes on derivative transactions while South Korea raises £3.8bn. Even Switzerland and the US have their own taxes on transactions which do not seem to have harmed their reputations as financial centres. Indeed, the UK’s very own stamp duty of 0.5 per cent on share transactions currently raises about £3bn a year for the Treasury; much of this tax (around 40 percent) is paid by people, including non-British, based abroad, who trade in UK shares.

Another myth often touted is that ordinary people and pensioners will end up paying the price. But the rate for the FTT is set so low precisely to avoid hitting longer term investments such as people’s pensions. On the contrary, a paper published this week shows that the FTT is an opportunity to help safeguard pensioners’ investments through reducing short-term speculative activity and encouraging pension funds to return to their traditional, less risky role as buy-and-hold investors - exactly the sort of cautious, long-term funds which experienced the most growth over the rocky 2008-2010 period.

Sparked by recent low interest rates, the increased turnover of assets amongst pension funds contributes to management costs of between two and 20 per cent. It is these high fees - reaped by intermediaries such as advisers, managers and brokers - that are having a major impact on pensioners’ returns.

The tax will also help improve market stability by reducing high-frequency trading including computer-driven trading in which shares are bought and sold hundreds of times a second. Virtually unheard of seven years ago, high frequency trading now accounts for up to 77 percent of all trading in UK equities.

Dictated by computers, too fast for humans to monitor, high frequency trading can create sudden crashes and wild fluctuations in stock prices that bear no relation to market fundamentals and serve little economic purpose. Applying a tiny tax every time a stock is traded will dramatically reduce the incentive to use computers at lightening speeds as the tax outweighs the wafer-thin profits. This will improve financial stability and help reduce the likelihood of future crises, which can lead to a higher level of GDP in the future.

If a levy of 0.1 per cent also makes other elements of City trading unprofitable, you have got to ask how valuable was that activity in the first place?

By triggering a shift away from short-term trading in favour of long-term holding the FTT will thus help reduce misalignments in markets and their subsequent abrupt adjustments or crashes, decreasing the likelihood of future crises. Indeed, countries with FTTs were amongst those least affected by the 2008 crash.

At a time when the UK government continues to struggle with the impact of a crisis that will according to the Bank of England, ultimately cost the UK at least £1.8trn and as much as £7.4trn in lost GDP, it seems reasonable to expect the financial sector, largely responsible for creating the crisis, not just to contribute to repair the damage but also to adopt measures to help reduce the likelihood of future crises.

To us and 50 other financiers who wrote to David Cameron and other European leaders in support of the tax, it is clear the FTT would help rein in markets, help kick-start national economies and provide money to help the world’s poorest countries. The FTT will shortly be a reality in Europe’s biggest economies. The UK cannot afford to ignore it.

Campaigners for a FTT protest in Westminster. Photograph: Getty Images

Jack Gray is currently an Adjunct Professor at the Paul Woolley Centre for Capital Market Dysfunctionality, University of Technology Sydney and an adviser to pension funds in Australia and overseas.

Professor Stephany Griffith-Jones is Financial Markets Director at the Initiative for Policy Dialogue, Columbia University.

Photo: André Spicer
Show Hide image

“It’s scary to do it again”: the five-year-old fined £150 for running a lemonade stand

Enforcement officers penalised a child selling home-made lemonade in the street. Her father tells the full story. 

It was a lively Saturday afternoon in east London’s Mile End. Groups of people streamed through residential streets on their way to a music festival in the local park; booming bass could be heard from the surrounding houses.

One five-year-old girl who lived in the area had an idea. She had been to her school’s summer fête recently and looked longingly at the stalls. She loved the idea of setting up her own stall, and today was a good day for it.

“She eventually came round to the idea of selling lemonade,” her father André Spicer tells me. So he and his daughter went to their local shop to buy some lemons. They mixed a few jugs of lemonade, the girl made a fetching A4 sign with some lemons drawn on it – 50p for a small cup, £1 for a large – and they carried a table from home to the end of their road. 

“People suddenly started coming up and buying stuff, pretty quickly, and they were very happy,” Spicer recalls. “People looked overjoyed at this cute little girl on the side of the road – community feel and all that sort of stuff.”

But the heart-warming scene was soon interrupted. After about half an hour of what Spicer describes as “brisk” trade – his daughter’s recipe secret was some mint and a little bit of cucumber, for a “bit of a British touch” – four enforcement officers came striding up to the stand.

Three were in uniform, and one was in plain clothes. One uniformed officer turned the camera on his vest on, and began reciting a legal script at the weeping five-year-old.

“You’re trading without a licence, pursuant to x, y, z act and blah dah dah dah, really going through a script,” Spicer tells me, saying they showed no compassion for his daughter. “This is my job, I’m doing it and that’s it, basically.”

The girl burst into tears the moment they arrived.

“Officials have some degree of intimidation. I’m a grown adult, so I wasn’t super intimidated, but I was a bit shocked,” says Spicer. “But my daughter was intimidated. She started crying straight away.”

As they continued to recite their legalese, her father picked her up to try to comfort her – but that didn’t stop the officers giving her stall a £150 fine and handing them a penalty notice. “TRADING WITHOUT LICENCE,” it screamed.


Picture: André Spicer

“She was crying and repeating, ‘I’ve done a bad thing’,” says Spicer. “As we walked home, I had to try and convince her that it wasn’t her, it wasn’t her fault. It wasn’t her who had done something bad.”

She cried all the way home, and it wasn’t until she watched her favourite film, Brave, that she calmed down. It was then that Spicer suggested next time they would “do it all correctly”, get a permit, and set up another stand.

“No, I don’t want to, it’s a bit scary to do it again,” she replied. Her father hopes that “she’ll be able to get over it”, and that her enterprising spirit will return.

The Council has since apologised and cancelled the fine, and called on its officials to “show common sense and to use their powers sensibly”.

But Spicer felt “there’s a bigger principle here”, and wrote a piece for the Telegraph arguing that children in modern Britain are too restricted.

He would “absolutely” encourage his daughter to set up another stall, and “I’d encourage other people to go and do it as well. It’s a great way to spend a bit of time with the kids in the holidays, and they might learn something.”

A fitting reminder of the great life lesson: when life gives you a fixed penalty notice, make lemonade.

Anoosh Chakelian is senior writer at the New Statesman.