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

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PMQs review: Jeremy Corbyn prompts Tory outrage as he blames Grenfell Tower fire on austerity

To Conservative cries of "shame on you!", the Labour leader warned that "we all pay a price in public safety" for spending cuts.

A fortnight after the Grenfell Tower fire erupted, the tragedy continues to cast a shadow over British politics. Rather than probing Theresa May on the DUP deal, Jeremy Corbyn asked a series of forensic questions on the incident, in which at least 79 people are confirmed to have died.

In the first PMQs of the new parliament, May revealed that the number of buildings that had failed fire safety tests had risen to 120 (a 100 per cent failure rate) and that the cladding used on Grenfell Tower was "non-compliant" with building regulations (Corbyn had asked whether it was "legal").

After several factual questions, the Labour leader rose to his political argument. To cries of "shame on you!" from Tory MPs, he warned that local authority cuts of 40 per cent meant "we all pay a price in public safety". Corbyn added: “What the tragedy of Grenfell Tower has exposed is the disastrous effects of austerity. The disregard for working-class communities, the terrible consequences of deregulation and cutting corners." Corbyn noted that 11,000 firefighters had been cut and that the public sector pay cap (which Labour has tabled a Queen's Speech amendment against) was hindering recruitment. "This disaster must be a wake-up call," he concluded.

But May, who fared better than many expected, had a ready retort. "The cladding of tower blocks did not start under this government, it did not start under the previous coalition governments, the cladding of tower blocks began under the Blair government," she said. “In 2005 it was a Labour government that introduced the regulatory reform fire safety order which changed the requirements to inspect a building on fire safety from the local fire authority to a 'responsible person'." In this regard, however, Corbyn's lack of frontbench experience is a virtue – no action by the last Labour government can be pinned on him. 

Whether or not the Conservatives accept the link between Grenfell and austerity, their reluctance to defend continued cuts shows an awareness of how politically vulnerable they have become (No10 has announced that the public sector pay cap is under review).

Though Tory MP Philip Davies accused May of having an "aversion" to policies "that might be popular with the public" (he demanded the abolition of the 0.7 per cent foreign aid target), there was little dissent from the backbenches – reflecting the new consensus that the Prime Minister is safe (in the absence of an attractive alternative).

And May, whose jokes sometimes fall painfully flat, was able to accuse Corbyn of saying "one thing to the many and another thing to the few" in reference to his alleged Trident comments to Glastonbury festival founder Michael Eavis. But the Labour leader, no longer looking fearfully over his shoulder, displayed his increased authority today. Though the Conservatives may jeer him, the lingering fear in Tory minds is that they and the country are on divergent paths. 

George Eaton is political editor of the New Statesman.

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