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: Getty
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Who will win in Stoke-on-Trent?

Labour are the favourites, but they could fall victim to a shock in the Midlands constituency.  

The resignation of Tristram Hunt as MP for Stoke-on-Central has triggered a by-election in the safe Labour seat of Stoke on Trent Central. That had Westminster speculating about the possibility of a victory for Ukip, which only intensified once Paul Nuttall, the party’s leader, was installed as the candidate.

If Nuttall’s message that the Labour Party has lost touch with its small-town and post-industrial heartlands is going to pay dividends at the ballot box, there can hardly be a better set of circumstances than this: the sitting MP has quit to take up a well-paid job in London, and although  the overwhelming majority of Labour MPs voted to block Brexit, the well-advertised divisions in that party over the vote should help Ukip.

But Labour started with a solid lead – it is always more useful to talk about percentages, not raw vote totals – of 16 points in 2015, with the two parties of the right effectively tied in second and third place. Just 33 votes separated Ukip in second from the third-placed Conservatives.

There was a possible – but narrow – path to victory for Ukip that involved swallowing up the Conservative vote, while Labour shed votes in three directions: to the Liberal Democrats, to Ukip, and to abstention.

But as I wrote at the start of the contest, Ukip were, in my view, overwritten in their chances of winning the seat. We talk a lot about Labour’s problem appealing to “aspirational” voters in Westminster, but less covered, and equally important, is Ukip’s aspiration problem.

For some people, a vote for Ukip is effectively a declaration that you live in a dump. You can have an interesting debate about whether it was particularly sympathetic of Ken Clarke to brand that party’s voters as “elderly male people who have had disappointing lives”, but that view is not just confined to pro-European Conservatives. A great number of people, in Stoke and elsewhere, who are sympathetic to Ukip’s positions on immigration, international development and the European Union also think that voting Ukip is for losers.

That always made making inroads into the Conservative vote harder than it looks. At the risk of looking very, very foolish in six days time, I found it difficult to imagine why Tory voters in Hanley would take the risk of voting Ukip. As I wrote when Nuttall announced his candidacy, the Conservatives were, in my view, a bigger threat to Labour than Ukip.

Under Theresa May, almost every move the party has made has been designed around making inroads into the Ukip vote and that part of the Labour vote that is sympathetic to Ukip. If the polls are to be believed, she’s succeeding nationally, though even on current polling, the Conservatives wouldn’t have enough to take Stoke on Trent Central.

Now Theresa May has made a visit to the constituency. Well, seeing as the government has a comfortable majority in the House of Commons, it’s not as if the Prime Minister needs to find time to visit the seat, particularly when there is another, easier battle down the road in the shape of the West Midlands mayoral election.

But one thing is certain: the Conservatives wouldn’t be sending May down if they thought that they were going to do worse than they did in 2015.

Parties can be wrong of course. The Conservatives knew that they had found a vulnerable spot in the last election as far as a Labour deal with the SNP was concerned. They thought that vulnerable spot was worth 15 to 20 seats. They gained 27 from the Liberal Democrats and a further eight from Labour.  Labour knew they would underperform public expectations and thought they’d end up with around 260 to 280 seats. They ended up with 232.

Nevertheless, Theresa May wouldn’t be coming down to Stoke if CCHQ thought that four days later, her party was going to finish fourth. And if the Conservatives don’t collapse, anyone betting on Ukip is liable to lose their shirt. 

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