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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Find the EU renegotiation demands dull? Me too – but they are important

It's an old trick: smother anything in enough jargon and you can avoid being held accountable for it.

I don’t know about you, but I found the details of Britain’s European Union renegotiation demands quite hard to read. Literally. My eye kept gliding past them, in an endless quest for something more interesting in the paragraph ahead. It was as if the word “subsidiarity” had been smeared in grease. I haven’t felt tedium quite like this since I read The Lord of the Rings and found I slid straight past anything written in italics, reasoning that it was probably another interminable Elvish poem. (“The wind was in his flowing hair/The foam about him shone;/Afar they saw him strong and fair/Go riding like a swan.”)

Anyone who writes about politics encounters this; I call it Subclause Syndrome. Smother anything in enough jargon, whirr enough footnotes into the air, and you have a very effective shield for protecting yourself from accountability – better even than gutting the Freedom of Information laws, although the government seems quite keen on that, too. No wonder so much of our political conversation ends up being about personality: if we can’t hope to master all the technicalities, the next best thing is to trust the person to whom we have delegated that job.

Anyway, after 15 cups of coffee, three ice-bucket challenges and a bottle of poppers I borrowed from a Tory MP, I finally made it through. I didn’t feel much more enlightened, though, because there were notable omissions – no mention, thankfully, of rolling back employment protections – and elsewhere there was a touching faith in the power of adding “language” to official documents.

One thing did stand out, however. For months, we have been told that it is a terrible problem that migrants from Europe are sending child benefit to their families back home. In future, the amount that can be claimed will start at zero and it will reach full whack only after four years of working in Britain. Even better, to reduce the alleged “pull factor” of our generous in-work benefits regime, the child benefit rate will be paid on a ratio calculated according to average wages in the home country.

What a waste of time. At the moment, only £30m in child benefit is sent out of the country each year: quite a large sum if you’re doing a whip round for a retirement gift for a colleague, but basically a rounding error in the Department for Work and Pensions budget.

Only 20,000 workers, and 34,000 children, are involved. And yet, apparently, this makes it worth introducing 28 different rates of child benefit to be administered by the DWP. We are given to understand that Iain Duncan Smith thinks this is barmy – and this is a man optimistic enough about his department’s computer systems to predict in 2013 that 4.46 million people would be claiming Universal Credit by now*.

David Cameron’s renegotiation package was comprised exclusively of what Doctor Who fans call handwavium – a magic substance with no obvious physical attributes, which nonetheless helpfully advances the plot. In this case, the renegotiation covers up the fact that the Prime Minister always wanted to argue to stay in Europe, but needed a handy fig leaf to do so.

Brace yourself for a sentence you might not read again in the New Statesman, but this makes me feel sorry for Chris Grayling. He and other Outers in the cabinet have to wait at least two weeks for Cameron to get the demands signed off; all the while, Cameron can subtly make the case for staying in Europe, while they are bound to keep quiet because of collective responsibility.

When that stricture lifts, the high-ranking Eurosceptics will at last be free to make the case they have been sitting on for years. I have three strong beliefs about what will happen next. First, that everyone confidently predicting a paralysing civil war in the Tory ranks is doing so more in hope than expectation. Some on the left feel that if Labour is going to be divided over Trident, it is only fair that the Tories be split down the middle, too. They forget that power, and patronage, are strong solvents: there has already been much muttering about low-level blackmail from the high command, with MPs warned about the dire influence of disloyalty on their career prospects.

Second, the Europe campaign will feature large doses of both sides solemnly advising the other that they need to make “a positive case”. This will be roundly ignored. The Remain team will run a fear campaign based on job losses, access to the single market and “losing our seat at the table”; Leave will run a fear campaign based on the steady advance of whatever collective noun for migrants sounds just the right side of racist. (Current favourite: “hordes”.)

Third, the number of Britons making a decision based on a complete understanding of the renegotiation, and the future terms of our membership, will be vanishingly small. It is simply impossible to read about subsidiarity for more than an hour without lapsing into a coma.

Yet, funnily enough, this isn’t necessarily a bad thing. Just as the absurd complexity of policy frees us to talk instead about character, so the onset of Subclause Syndrome in the EU debate will allow us to ask ourselves a more profound, defining question: what kind of country do we want Britain to be? Polling suggests that very few of us see ourselves as “European” rather than Scottish, or British, but are we a country that feels open and looks outwards, or one that thinks this is the best it’s going to get, and we need to protect what we have? That’s more vital than any subclause. l

* For those of you keeping score at home, Universal Credit is now allegedly going to be implemented by 2021. Incidentally, George Osborne has recently discovered that it’s a great source of handwavium; tax credit cuts have been postponed because UC will render such huge savings that they aren’t needed.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 11 February 2016 issue of the New Statesman, The legacy of Europe's worst battle