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There has been a campaign running for some time now for a “Robin Hood Tax” or “Tobin Tax” on financial transactions where a levy is applied to all share, bond and currency trades. The debate intensified this week when the Church officially came out and supported the idea (I wonder if this was an attempt to divert attention from the pickle they have gotten themselves into at St Paul’s).
The Church is not alone, the EU is very much in favour of implementing a transaction tax and Nicolas Sarkozy and Angela Merkel are keen to implement it. They no doubt do so knowing full well that London will bear the brunt of such measures and take the effective risk of driving its valuable financial services sector abroad. If additional taxes were proposed on agricultural or engineering output instead I very much doubt the French or German stance would be so enthusiastic.
David Cameron and George Osborne have naturally been cautious on the idea in a bid to protect the UK’s interests, agreeing in principle but arguing such a tax would need to be globally implemented to avoid a mass flight of financial services businesses to relocate in countries with more favourable tax conditions. There has already been the “super tax” on bonuses, the four year banking levy came into force this year and now the Tobin tax is under discussion. Will there become a point when the UK will lose its appeal to be a major centre for financial services? How big in reality is the threat to the UK’s financial sector from other global locations and what could those locations be?
Your thoughts as ever are appreciated.
Andrew McIntee is a Director and Head of Financial Services at Interim Partners.
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November 11th, 2011 at 7:41 am
Taxing less, empowering business by getting rid of regulations is how we create jobs and tackle our current mess. Politicians do not think outside of the box and when they announce new ways of taxation, you know theu have run out of ideas. As for the church, these self appointed saviours of society couldn’t find their way out of a paper bag let alone offer advice on something they have no training or insight into.
November 11th, 2011 at 7:43 am
As you know, Clusters at microeconomic level are key drivers to economic progress. That fact that the UK does not have the range of industries from which cluster expansions would subsequently create new supporting industries and a diversification / expansion of jobs means we are heavily reliant as a nation on the financial services sector in the City. This is bad policy as the concentration is to high and is only relatively attractive in a growing economy.
In an economic crisis, either capital has to be used as a growth stimulus to create returns on capital to feed the increased capital requirements, or where capital is in short supply, increased taxation is used to help nations fund their spending.
Transactional taxation on mass market transactions is appropriate in the current cycle as the supply of capital is almost non existent and funds need to come from somewhere – taxing the public more would just create a wider divide between the rich and the less rich.
I agree a Tobin type tax should be applied globally, how this could be controlled when so many nations have their own discrete economic challenges and political agenda makes it highly improbable as the world does not have a robust oversight of accounting standards or governance to ensure that everyone “played ball”
November 11th, 2011 at 6:33 pm
Yes this is a great idea, lets tax the service industries which are the only thing that are keeping this country afloat.Remember we make very little now. People need to wake up and realise that Europe is now a 2nd class area and that China, India, South America and Russia now are the economic power houses, our only option is to do what we are good at (some might dispute this of course on recent evidence) and help these places run their financial services. IF you that think that the banks and fincaial institutions won’t move look to Sweden, they did this and where did all their finance institutions move to? London as it was much less restrictive here. Why would the banks not more to China or India, the clue might be in the name – HSBC (HongKong Shaghai Banking Corporation!).
November 13th, 2011 at 1:00 pm
Knowing banks’ ability to transfer costs to third parties, i.e. borrowers and depositors, this tax will end up increasing borrowing costs and decreasing interest on deposits, so as banks play always safe, the Tobin tax bears the risk of escalating taxation to the public with no other beneficiary but the banks.
In my opinion, in the current circumstances banks should find less incentives in speculating with non-financial instruments and their bankers not so generous rewarded through bonuses schemes that, for sure, very few would be able to earn should they were playing on their own, without the brand name, organisation and financial resources that banks made available for them. A special tax bonuses and profits made out from derivatives and commodities trading together with more stringent regulation with regard to risk assumption (eg. less generous financing of sovereign debts) would help to put the banks back on track again.