Labour play games on Robin Hood Tax

Labour’s attempt to force a vote on a financial transaction tax, outlined in yesterday’s Guardian, appears to be more of a ruse to embarrass the Liberal Democrats than a serious attempt to develop a consensus on the issue. The SNP used to habitually put forward motions in the Scottish Parliament aimed at splitting the Labour/Liberal Democrat Government. It’s just something that happens.

The reality is that things change on this over time, by painstaking negotiation, not by a mischief making motion in Parliament. We know that the idea of such a tax sits well with Liberal Democrats. Vince Cable has said repeatedly that he’s not against it in principle. In 2011, he dismissed the idea of an EU only tax, though, as a “tax on Britain” as the BBC reported at the time:

What the European Union countries are proposing, and Angela Merkel, is a tax which is effectively a tax on Britain, the revenue of which would go to support the EU budget.

We are not going to fall for that. It is completely irrelevant to the really urgent needs to sort out the problem of the eurozone. So, of course, we react to that and are critical of that.

He elaborated on that argument in March when he appeared before a Parliamentary Committee:

The reason why the British Government has been pretty negative about it is mainly on grounds of practicality and the other reason we have been sceptical about it, of course, is that most of the revenue would be generated in the UK and under the European Union’s proposal would be repatriated to Brussels, which understandably, we are not too happy about.

He added that it wasn’t as easy to collect this tax as you might think, and that Hungary had only reaped a fraction of what it had expected when it introduced the measure:

I originally worked on Tobin tax concepts 20 or 30 years ago, long before I came into this place.

I think the problem all along has been implementing it where you have very rapid electronic transactions, where cross-border transactions are very difficult to trace.

The case for the Robin Hood Tax isn’t universally accepted amongst those of a liberal persuasion though. Way back in 2010, James Graham questioned, over at the Social Liberal Forum blog,  whether it could achieve what it promised:

The Robin Hood Tax is not the same thing as a Tobin Tax. James Tobin’s proposal was intended specifically to attack currency speculation – not to raise revenue. The Robin Hood Tax, according to their own blog is intended to do the exact opposite.

Why does that make me nervous? Well because when it comes to taxes, I’m highly dubious about taxes on economic activity. Economic activity is a good thing: it gives people jobs (and meaning). Markets aren’t perfect and can create all sorts of anti-social problems but it isn’t the economic activity itself which is the problem but, generally, monopolisation and speculation. Taxing all financial transactions equally won’t tackle bad economic activity any more than the good – it’s just another way of screwing money out of the rest of us. What’s worse is that unlike the Tobin Tax, this idea isn’t about discouraging what is arguably a bad economic activity but profiting from it. Speculation just ruined your economy? Dont worry, here’s a sticking plaster courtesy of the Robin Hood Tax.

Let’s introduce taxes that don’t create perverse economic incentives (such as land value taxation) before creating new ones that do.

Labour’s stunt next week may cause them amusement but it doesn’t detract from their failure to sort out the banking system both in Britain and globally during the 13 years that they were in power.

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  • FTTs are a stupid idea that have for more negative consequences than the amount raised could compensate for.

    Stick with a decent LVT (but not the sil;ly mansion tax idea, a full LVT).

  • Definitely looks like a bit of mischief making. On the other hand, I don’t see why our MPs voted against it – the motion was about approving the principle of FTT (how you actually make it work is another matter) which, after all, was in the last manifesto. If we want to be distancing ourselves from the Tories, this is the sort of no lose vote Lib Dems should really be backing.

  • FTT is indeed a dumb idea – just look what it did for Sweden’s financial services industry when it tried it out some years back. We can now sit back and watch it do the same for France and Germany (I suspect the latter will find some way to pull out or scale back the FTT for that reason).

    More fundamentally, though, who bears the FTT? The answer is not that it is some victimless tax on financial institutions but rather that it increases the price of the users of financial instruments – and ultimately their end users. So pension funds will see their value further reduced. Manufacturing companies will see their costs increase (which they will then pass on to consumers). And it will discourage hedging, therefore increasing the risk to companies and consumers alike.

    Overall FTT is an ill-thought out idea and the 11 countries signed up to it in Europe are about to prove that, in one of the biggest experiments of its kind.

  • David Preedy 20th Jun '13 - 8:05pm

    I think an FTT needs serious consideration. One of the causes of the Financial melt-down was that bankers were developing increasingly complex inter-related multiple transactions; this complexity served to hide risk (not reduce it). An FTT would provide some brake on this tendency and provide an incentive for fewer transactions which would be more straightforward & transparent. Also (as mentioned elsewhere) Stamp Duty already forms a transaction tax, but it’s one that only hits the (relatively) small guys; big organisations ensure that they find ways around it. An FTT (at a much lower rate than Stamp Duty) could level the playing field.

  • Can we really criticise anyone for ‘playing games’ after what the Lib Dems did over the Labour mansion tax proposals?

  • @ David Preedy

    The financial crisis was due to too much lending in the private sector and too much spending the public.

  • It’s Owen’s comments above, not mine or Vince Cable’s, that are naive and wide of the mark. To take just a couple of these points in turn:

    The FTT that failed in Sweden is pretty much identical to that which the EU 11 are currently proposing and which the (misnamed) Robin Hood tax campaign advocate. Perhaps he can call out the significant differences and why he thinks that will make this latest experiment any different?

    There’s a clear inconsistency in saying on the one hand that FTT would be “only” 20% of the rate of stamp duty and at the same time that it would raise £20bn extra funds, on top of the £3bn raised from stamp duty. Of course if you delve deeper, the reason for that is because FTT is such a poorly designed tax that it hits the same transaction multiple times – it has a cumulative impact. Advocates like Owen above argue this is a good thing, as it hits multiple trades but what they fail to appreciate is that those multiple trades are actually used by the underlying investors (pension funds, manufacturing companies etc, not some mysterious ‘speculators’) to reduce their risk. They don’t do multiple trades for the fun of it, or to speculate (that isn’t in the mandate of most pension funds or in-house treasury departments); they use them to reduce their exposure for foreign currency, interest rate or commodity exposures. And doing so enables them to protect their funds or keep their prices low. Inevitably if you raise £20bn extra tax from this, that means £20bn less in pension funds and in increased prices to consumers.

    But we’ll soon find out who’s right: the EU 11 experiment is all geared up to begin. I for one am delighted that the UK isn’t part of it (though we will be affected to some degree – and the UK govt is rightly taking a case to the European Court of Justice on that). I suspect it won’t be long before Germany in particular starts to have second thoughts and my prediction is that they’ll find a way to wriggle out or collapse the whole system within 2 years of it starting.

  • Dominic’s points about pension funds and manufacturing companies are very important. Manufacturing companies in this country fix their import costs by using derivatives – that gives them confidence to bid for supply contracts in this country or abroad. Any loss of their ability to have cost certainty will result in higher prices in our shops, fewer people employed in UK companies and, as a result, less tax revenue in this country (from both company profits and employee income tax).
    David Preedy’s has a point – but an FTT is not the answer. One of the reasons banks stopped lending to each other five years ago is none of them knew their counterparty’s positions (which would be the next bank to fail), possibly because many banks did not know their own positions. If we want UK manufacturing companies to continue to compete, we need to allow them to hedge their interest rate and foreign exchange positions – with banks. Banks need to be able to hedge their own positions without the complication of unnecessary tax. Gaining visibility over bank positions can be achieved by requiring the use of a central counterparty, which would also help to unwind positions should a bank fail in the future.

  • @ Owen

    You clearly don’t understand what a derivative is.

    Forwards, futures, options are all derivatives these are the basics of hedging for manufacturing and they essential. You talk about old ways we would “go back to” but the old ways were using derivatives.

    You need to do some real research.

  • Eddie Sammon 22nd Jun '13 - 12:24am

    Currency speculation is good for society. If the £ is too high then somebody better bring the price down as soon as possible rather than wait for the bubble to inflate even more.

  • Psi, apologies if attempting to keep my remarks short has encouraged you in further ad hominem attacks. The point I was making was that the explosion of the derivatives market over the last ten to twenty years suggests that they are not an essential part of a global trading system. The vast majority of derivatives trading is not about hedging, it’s just gambling. Other gamblers have to pay tax, even though putting a few quid on the gee-gees isn’t likely to crash the global economy.

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