Europe’s Robin Hood Tax: engagement is better than putting your head in the sand
The Government’s legal action against the European Commission over the 11-country financial transactions tax (FTT) is as doomed to failure as the challenge to the Working Time Directive twenty years ago. And it’s a good example of why refusing to engage in Europe is not a viable strategy for Britain.
For a couple of years, the Government has been hoping that the FTT proposal would go away. A year ago, David Cameron said he had no objection if others went ahead. Since then, Government Ministers have said they are not against the tax in principle, but would not be signing up. This benign neutrality in fact masked a frantic lobbying effort designed to torpedo the tax by seeking to cobble together a blocking minority against the tax which finally came to naught when they could only muster the support of the Czech Republic, Luxemburg and Malta (before the Maltese people threw out their Government in a Labour landslide this March.)
Now the Government has lawyered up, claiming that the proposal breaches European law because of its extra-territoriality (ie selling financial instruments registered in participating countries will be taxed regardless of where the buyer or seller operate). Since the UK’s own financial transactions tax, the three-hundred year-old Stamp Duty on share transactions, operates on exactly that principle and raises about £3bn a year for the Exchequer, a victory might be pyrrhic at best. (Indeed the Prime Minister’s comment last year specifically acknowledged that the European proposal was merely building on the UK’s successful tax.)
Many people from the financial sector who are likely to bear the brunt of the tax have also chimed in with other criticisms of a tax which the IMF, originally strongly opposed, now admits would be workable, efficient (certainly compared to other taxes) and progressive.
But at no stage have these critics, or the EU Governments now opposing the tax, actually engaged with its design.
That’s one reason why the criticisms now being raised so often miss the mark. Supporters of the tax include unions across Europe, centre right as well as centre left governments, over a thousand economists and a group of financiers whose own experience of the financial markets has driven them to oppose its unfettered riskiness. So it’s not really surprising that those new to the debate are reduced to raising concerns that have already been thoroughly considered and dismissed.
It’s also worth noting how popular such a tax would be – every opinion poll on the subject for a couple of years has shown, in Britain and across Europe, that an FTT has at least 2:1 support from voters.
Howard Miller’s suggestion on British Influence last week that relocation was a risk is particularly wide of the mark – that’s precisely what the extra-territoriality provisions are designed to prevent! And his assertion that Commission estimates of the revenue likely to be generated are based on “optimistic assumptions regarding the impact of the tax on transaction volumes” involves a new definition of optimism – the Commission expects some trading classes to reduce by 75%!
Many of the other criticisms now being made – such as the impact on pension funds – are based on similar head-in-the-sand approaches. They rely entirely on the tax’s impact on existing behaviour, whereas one of the reasons the tax has such support from economists is precisely its behavioural impact.
An FTT would make high frequency trading – short termism of any kind, in fact – much more expensive than now. So the sensible thing for pension funds that are, admittedly, increasingly trying to beat the markets by investing in risky algorithmic trading is to get back to the way pension funds used to make money (more than they do now, in fact) and invest long term in sustainable business.
Above all, people worried about what we call the Robin Hood Tax should be helping to address any shortcomings they perceive, rather than pretending it will never happen or mounting increasingly quixotic attacks on a tax that could help restart the engine of growth in Europe. Backing the casino economy of exotic financial products isn’t going to help Europe – or Britain – win any global race.