A softly softly approach to the financial sector won't work. Photo: Getty
Show Hide image

How can Labour prove it's not on the side of a small cabal in the Square Mile?

How the recent tax avoidance scandal shows that the softly softly approach won't work, and we need a financial transaction tax.

Ed Miliband repeatedly challenged David Cameron at Prime Minister’s Questions recently to close a tax loophole that allows hedge funds and others to dodge the stamp duty they should pay on share transactions. Last week in parliament a report was launched by former senior banker Avinash Persaud which shows that by tightening such rules we can raise a potential additional £2bn year. In both cases the Conservatives have looked the other way. Perhaps it’s something to do with the Conservative party receiving a large wedge of their funding from the financial sector?

It fits a pattern. The government has bitterly fought European legislation designed to keep financial services in check; the ringfencing of investment and retail banking has been delayed until 2018, a decade too late; and no individuals have been convicted for their part in the crisis. The list goes on: an anaemic bank levy has raised little revenue; financial sector corporation tax receipts are dwindling and financial sector remuneration is so out of sync with the rest of the economy it took senior bankers just the first week of January to earn what the average Briton will take home for all of 2015.

Timidity towards the Stamp Duty (itself a very modest proposal) is thrown into even starker contrast when we consider what is happening across the channel. Eleven European countries, that in total make up around 70 per cent of European GDP, are going further – they’ve committed to a broader Financial Transaction Tax. Our stamp duty, which is set at a rate of 0.5 per cent, is paid every time a UK share is traded. As France’s President Hollande indicated earlier in the year, the European proposal will apply to shares, but crucially it will also apply to the colossal market of financial chicanery known as derivatives. Whilst the details are still to be hammered out this is likely to raise in excess of £10bn a year for participating countries.

This is not a policy preserve of the left – Germany is one of its biggest champions. Like us, they too have unfurled a wide-ranging austerity programme, yet with a quid pro quo: if the public are paying the price of the economic crisis they did little to cause, the financial sector must also pay its share.

Of course, some financial sector players are squealing in horror – but they would protest about a tax they’ll have to pay wouldn’t they? Indeed, we should be more concerned if they were silent. The truth about FTTs is more prosaic than critics suggest. Many moderate variations of the tax have already been successfully implemented around the globe. Most have been implemented unilaterally without unduly impacting on markets, putting paid to the idea they must be global to work. The UK’s stamp duty provides the blueprint – it captures share trades wherever in the world they take place, since without it, legal title will not be transferred to the new owner. This is so effective, 40 per cent of its revenue comes from overseas counter-parties.

Closing the stamp duty loopholes could raise us £2bn a year in extra revenue – this offers a real chance for Labour to put itself on the side of the majority of the electorate and not on the side of a small cabal in the Square Mile. But the real prize comes in extending the stamp duty to a fully-fledged FTT that covers derivatives and other financial asset classes, as they are doing on the European mainland. Labour shouldn't get bogged down in old arguments about waiting for the United States to join the proposal – not now it's happening on our doorstep. We should act. 

As I set out in my new book, the FTT isn’t a panacea, and must sit alongside other measures such as reforms to inheritance tax and a higher rate of VAT on luxury goods. What it is though, is a moderate, credible and proven revenue raiser that will also curb some of the sector’s most odious practices such as high-frequency trading that deliver little social value.

It’s time we learnt the lessons of history: a softly softly approach to the financial sector does not work.

Peter Hain is MP for Neath and a former Labour Cabinet and Government Minister. His new book advocating an FTT  Back to the Future of Socialism  is published by Policy Press

Peter Hain is a former Labour cabinet minister and was MP for Neath between 1991 and 2015 before joining the House of Lords.

Getty
Show Hide image

Children from "just managing" families most excluded from grammar schools

Shadow education secretary Angela Rayner said grammar schools "offer nothing to most kids".

Children from "just about managing" families are unlikely to benefit from an expansion of grammar schools because they don't get accepted in the first place, research from the Sutton Trust has found.

The educational charity also found that disadvantaged white British pupils were the least likely among a range of ethnic groups to get access to elite state school education. 

Shadow education secretary Angela Rayner said: “The Tories are failing our children. They should be delivering a country that works for everyone but all they have to offer is a plan to build an education system that only helps a handful of already privileged children.

"The evidence is clear - grammar schools reinforce advantage and offer nothing to most kids."

Theresa May launched her premiership with both a pledge to make Britain work for the "just managing" families (consequently termed Jams), and a promise to consider expanding grammar schools. 

The Sutton Trust researchers used the Income Deprivation Affecting Children index to compare access rates to those defined "just about managing" by the Resolution Foundation. 

They found that even non-disadvantaged pupils living in deprived neighbourhoods are barely more likely to attend grammar schools than those in the poorest. The report stated: "This is a strong indication that the ‘just managing’ families are not being catered for by the current grammar school system."

The Sutton Trust also found different ethnic groups benefited differently from grammar schools.

Disadvantaged Black pupils made up just 0.8 per cent of pupils in 2016, while disadvantaged white British pupils made up roughly 0.7 per cent, although disadvantaged white non-British children fared slightly better. Among disadvantaged groups, Asian pupils made up a substantial proportion of grammar school pupils. 

Sutton Trust chairman Sir Peter Lampl said: “Today’s research raises concerns about the government’s plans to use new grammars as a vehicle for social mobility. We need to get existing grammars moving in the right direction before we consider expanding their number.”

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.