From the TUC

Taxing financial transactions: why the underdog is still my favourite

27 Jan 2010, by in Economics, International

Mervyn King is at it today in the Financial Times, endorsing a global bank levy rather than splitting up the banks or a financial transactions tax. He describes the latter as the least likely outcome of global discussions and he may be right. But that doesn’t mean we shouldn’t, or won’t, get such a tax.

It’s not hugely surprising that so many bankers favour a bank levy most and a transactions tax least. A bank levy would take the least from them and, in its purest form, would be returned to them when they next bring the economy to its knees. What’s not to like, except that even a bit of enforced saving threatens their self-image as Masters of the Universe?

A financial transactions tax, however, would hurt them more (especially the wildest eyed of them, the ones Adair Turner called ‘socially useless’) and benefit the rest of us far, far more. Indeed, a tax rate of 0.05% would be small change for them but a huge change for the rest of us – hundreds of billions of pounds a year to spend on public services, combating climate change and international development.

So, whilst there is in reality nothing to stop the world’s political leaders opting for all three measures, the real prize – and therefore the one worth fighting hardest for – is a financial transactions tax.

2 Responses to Taxing financial transactions: why the underdog is still my favourite

  1. a van hook
    Jan 27th 2010, 10:23 pm

    There are a lot of people out there saying “a bank tax will just be passed on to consumers. You can’t tax companies, they just pass it on to you and me.”
    Well, of course they will pass on the transaction tax on my activities – at 0.015% I can handle that. I dont believe They will be jacking up my checking account fees, etc. unless competition for my banking suddenly drops and I dont have as many alternatives to choose from.

    I like the idea of a financial transaction tax. I wonder if you could ultimately replace capital gains taxes with a transaction tax. Have you heard about the Autmated Payments Transaction tax?

  2. Richard Murphy
    Jan 28th 2010, 9:40 am

    Let me address the question raised: automated payments transactions taxes are something the TUC is familiar with – we have looked at them

    There are issues – and they’re certainly not an alternative to CGT – which is an essential back stop for income tax

    And nor are they a replacement for income tax – they could not really be made progressive

    But – they are more progressive than any VAT because they include transactions that the wealthy tend to undertake which are exempt from that tax – which imposes heavily on the poorest

    For that reason I personally support them as an alternative or supplement to VAT which can then be at a lower rate

    I also support them for another reason – the Revenue then would know about every bank account – and that in itself has a massive potential benefit in also tackling tax evasion

    So – it’s an issue on which I hope we will progress – but it needs very careful consideration before a proposal can be made

    Richard Murphy