11 EU countries are about to implement an FTT: the UK should make it 12

The Overton window is shifting, and now might be the time for an FTT.

In UK political circles, little serious consideration was given to the idea of a general financial transaction tax (FTT) before the financial crisis and recession. The City’s view that it would damage the UK’s successful financial industry held sway. But in the last few years, politicians have become more sceptical about what the City tells them and have expressed varying degrees of support for the principle of an FTT. The stumbling block, though, remains the possibility that an FTT introduced unilaterally in the UK would see the City lose business to other financial centres, in particular to New York.

Like the perennial threat that bankers are on the brink of leaving London for other shores as a result of the bankers bonus tax, or the bank levy, or the 50p tax rate, this claim is exaggerated. A badly designed FTT might result in business leaving these shores; a well-designed one could minimise that risk.

And the UK already has a well-designed FTT to act as a model: stamp duty on share purchases. This is very hard to avoid because the tax is paid when the change of legal ownership of shares is registered. If the tax is not paid, the purchaser does not legally acquire the shares. At least 30 other countries also have effective FTTs, and they are applied in 13 of the world’s top 15 financial centres.

Now 11 EU countries, including Germany, France and Italy, intend to introduce a financial transaction tax of 0.1 per cent on trades in shares and bonds and 0.01 per cent on trades in derivatives. We have argued in a recent paper that the UK should join with these countries broaden its FTT to trades in bonds and derivatives. If it is worried about losing business to New York, it should actively lobby US policy makers to introduce an FTT of their own, rather than waiting passively for them to act.

It has been estimated that joining the other 11 EU countries could raise up to £20bn a year in additional tax revenues. These could be used to ease the pressure for cuts in departmental spending and welfare payments. Better still, some of these revenues could be diverted to capitalise a British Investment Bank that would invest in infrastructure projects and lend to small and medium-sized business.

In a recent speech, Ed Miliband backed the idea British Investment Bank, together with a network of regional banks to help revitalise the economy. But he has not identified where the money to set up these banks and enable them to start lending would come from. Given the UK’s still large public sector borrowing requirement, this is a serious omission. An FTT could be the answer.

Of course, setting up these banks will take some time. In the interim, revenues from an FTT could be used directly to increase public spending on infrastructure. This would reconcile theviews of the Business Secretary, Vince Cable, who made the case for kick starting economic growth by investing in infrastructure projects and the Prime Minister, who has argued against unfunded tax cuts and borrowing for spending.

Extra infrastructure spending, a new bank – or set of regional banks – and a tax on financial transactions will not, on their own solve the UK’s economic problems. But they would be a step in the right direction. 11 EU countries are about to implement an FTT; the UK should make it 12.

Photograph: Getty Images

Tony Dolphin is chief economist at IPPR

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Air pollution: 5 steps to vanquishing an invisible killer

A new report looks at the economics of air pollution. 

110, 150, 520... These chilling statistics are the number of deaths attributable to particulate air pollution for the cities of Southampton, Nottingham and Birmingham in 2010 respectively. Or how about 40,000 - that is the total number of UK deaths per year that are attributable the combined effects of particulate matter (PM2.5) and Nitrogen Oxides (NOx).

This situation sucks, to say the very least. But while there are no dramatic images to stir up action, these deaths are preventable and we know their cause. Road traffic is the worst culprit. Traffic is responsible for 80 per cent of NOx on high pollution roads, with diesel engines contributing the bulk of the problem.

Now a new report by ResPublica has compiled a list of ways that city councils around the UK can help. The report argues that: “The onus is on cities to create plans that can meet the health and economic challenge within a short time-frame, and identify what they need from national government to do so.”

This is a diplomatic way of saying that current government action on the subject does not go far enough – and that cities must help prod them into gear. That includes poking holes in the government’s proposed plans for new “Clean Air Zones”.

Here are just five of the ways the report suggests letting the light in and the pollution out:

1. Clean up the draft Clean Air Zones framework

Last October, the government set out its draft plans for new Clean Air Zones in the UK’s five most polluted cities, Birmingham, Derby, Leeds, Nottingham and Southampton (excluding London - where other plans are afoot). These zones will charge “polluting” vehicles to enter and can be implemented with varying levels of intensity, with three options that include cars and one that does not.

But the report argues that there is still too much potential for polluters to play dirty with the rules. Car-charging zones must be mandatory for all cities that breach the current EU standards, the report argues (not just the suggested five). Otherwise national operators who own fleets of vehicles could simply relocate outdated buses or taxis to places where they don’t have to pay.  

Different vehicles should fall under the same rules, the report added. Otherwise, taking your car rather than the bus could suddenly seem like the cost-saving option.

2. Vouchers to vouch-safe the project’s success

The government is exploring a scrappage scheme for diesel cars, to help get the worst and oldest polluting vehicles off the road. But as the report points out, blanket scrappage could simply put a whole load of new fossil-fuel cars on the road.

Instead, ResPublica suggests using the revenue from the Clean Air Zone charges, plus hiked vehicle registration fees, to create “Pollution Reduction Vouchers”.

Low-income households with older cars, that would be liable to charging, could then use the vouchers to help secure alternative transport, buy a new and compliant car, or retrofit their existing vehicle with new technology.

3. Extend Vehicle Excise Duty

Vehicle Excise Duty is currently only tiered by how much CO2 pollution a car creates for the first year. After that it becomes a flat rate for all cars under £40,000. The report suggests changing this so that the most polluting vehicles for CO2, NOx and PM2.5 continue to pay higher rates throughout their life span.

For ClientEarth CEO James Thornton, changes to vehicle excise duty are key to moving people onto cleaner modes of transport: “We need a network of clean air zones to keep the most polluting diesel vehicles from the most polluted parts of our towns and cities and incentives such as a targeted scrappage scheme and changes to vehicle excise duty to move people onto cleaner modes of transport.”

4. Repurposed car parks

You would think city bosses would want less cars in the centre of town. But while less cars is good news for oxygen-breathers, it is bad news for city budgets reliant on parking charges. But using car parks to tap into new revenue from property development and joint ventures could help cities reverse this thinking.

5. Prioritise public awareness

Charge zones can be understandably unpopular. In 2008, a referendum in Manchester defeated the idea of congestion charging. So a big effort is needed to raise public awareness of the health crisis our roads have caused. Metro mayors should outline pollution plans in their manifestos, the report suggests. And cities can take advantage of their existing assets. For example in London there are plans to use electronics in the Underground to update travellers on the air pollution levels.

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Change is already in the air. Southampton has used money from the Local Sustainable Travel Fund to run a successful messaging campaign. And in 2011 Nottingham City Council became the first city to implement a Workplace Parking levy – a scheme which has raised £35.3m to help extend its tram system, upgrade the station and purchase electric buses.

But many more “air necessities” are needed before we can forget about pollution’s worry and its strife.  

 

India Bourke is an environment writer and editorial assistant at the New Statesman.