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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Is Britain about to leave the European Union?

A series of bad polls have pro-Europeans panicked. Are they right?

Is this what Brexit looks like? A batch of polls all show significant movement towards a Leave vote. ORB, a phone pollster, has Leave up four points to 46 per cent, with Remain’s leave cut to four points. ICM’s online poll has Leave up three points, putting Brexit ahead of Remain by 52 per cent to 48 per cent once don’t-knows are excluded. ICM’s phone poll shows Leave up six points, a Brexit lead of three points.

That two phone polls are showing advances for Leave are particularly significant, as telephone polling has tended to show lower figures for Brexit. There is a lively debate over which method, phone or online, is likely to be more effective at predicting the referendum, although no-one knows for certain at the present time.

In any case, whether on the telephone or the Internet, the latest polls have pro-Europeans worried, and Brexiteers jubilant. Who’s right?

There are reasons to start trusting the polls, at least as far as voter ID is concerned

So far, the performances of the political parties in local elections and by-elections has been about par with what we’d expect from the polls. So the chances are good that the measures taken post-2015 election are working.

Bank holidays are always difficult

I would be deeply cautious of reading too much into three polls, all of which have been conducted over the bank holiday weekend, a time when people go out, play with their kids, get wasted or go away for a long weekend. The last set of bank holiday polls gave Ed Miliband’s Labour party  large leads, well outside the average, which tended to show the two parties neck-and-neck.

Although this time they might be more revealing than we expect

One reason why the polls got it wrong in 2015 is they talked to the wrong type of people. The demographic samples were right but they were not properly representative. (Look at it like this – if my poll includes 18 actors who are now earning millions in cinema, I may have a representative figure in terms of the total number of Britain’s millionaires – but their politics are likely to be far to the left of the average British one percenter, unless the actor in question is Tom Conti.)

Across telephone and online, the pollsters talked to people who were too politically-motivated, skewing the result: Ed Miliband’s Labour party did very well among young people for whom Thursday night was a time to watch Question Time and This Week, but less well among young people for whom Thursday is the new Friday.  The polls had too many party members and not enough party animals.

But the question no-one can answer is this: it may be that differential turnout in the European referendum means that a sample of hyper-politicos is actually a better sample than an ordinary poll. Just as the polls erred in 2015 by sampling too many political people, they may be calling the referendum wrong in having too many apolitical people.

These three polls aren’t the scariest for Remain released today

IpsosMori released a poll today, taken 15 days ago and so free from any bank holiday effect, without a referendum voting intention question, but one taking the temperature on which issues the British public believe are the most important of the day.

Far from growing more invested in the question of Britain’s European Union membership as the campaign enters its terminal phase, concern about the European Union has flatlined at 28 per cent – within the margin of error of last month’s IpsosMori survey, which put Britain at 30 per cent. The proportion who believe that it is the biggest single issue facing Britain today also remains static at 16 per cent. Evidence of the high turnout necessary to avert Brexit seems thin on the ground.

Pro-Europeans should be further worried by the identity of the groups that are concerned about the European Union. Conservative voters, the over-65s and people from social grades A (higher managerial, administrative and professional workers) and B (intermediate managerial, administrative and professional workers), are more concerned about the European Union than the national average. The only one of those three groups that is more likely to favour Remain over Leave are ABers, while Conservative voters and the over-65s are likely to vote for Brexit over the status quo.

Among the demographics who are least concerned about the European Union, the only pro-Brexit group that is significantly less concerned about EU membership than the national average are people from social grades D (semi-skilled and unskilled manual workers) to E (state pensioners, casual workers and jobseekers). The other groups that are least concerned with the European Union are people who live in urban areas and people aged from 18 to 24, the two most pro-European demographics.

The prospects of a Brexit vote are rather better than the betting odds would suggest. 

Stephen Bush is special correspondent at the New Statesman. He usually writes about politics.