Government must oppose devastating EU 'Robin Hood' tax
City figures have reacted strongly to proposals by the European Parliament to impose a massive ‘Tobin’ or so-called ‘Robin Hood tax’ on financial transactions. MEPs voted through a report which backed a tax of up to 0.05 per cent, a figure which may sound very small but when applied to a total volume of transactions of £600 trillion in the UK alone would equate to a charge of up to £300 billion. However, as various commentators have pointed out, it is unlikely that traders would remain in the EU and pay the £172bn they believe it would raise rather than simply relocate to jurisdictions which do not levy the tax.
2020 Tax Commission chairman & City AM Editor Allister Heath highlights the assumptions behind the proposals in his daily Editor’s Letter:
“It is amazing how many intelligent people believe in free lunches… Even though there would no longer be any money to be made from trading in the EU, everybody would stay put, continuing to buy and sell as before, albeit for free, and ensuring that all of the tax money were actually raised – such altruistic people, these traders.”
The tax is unlikely to become law. The economic devastation it would wreak, not only to the City but also to Frankfurt and Paris will hopefully ensure Britain opposes the plan. And if they wish to retain the competitiveness of their own financial services industries, so too ought France and Germany. The objections are not hyperbole: Sweden introduced a tax in the 1980s. The results were alarming. Over 50 per cent of equity trades migrated to London. Trading in bonds, futures and options slumped 85, 98 and 100 per cent respectively in response to a lower tax at a time when business was less mobile than it is today. And much of the rationale for the tax that concerned people then, currency volatility, has lessened since the 1980s.
TPA director Matthew Sinclair said:
“One reason why few have supported a Tobin tax is that worries about foreign exchange speculation have slowly subsided as more countries have moved towards floating exchange rates, which do more to limit the potential for exchange rate speculation than a Tobin tax possibly could. Attempts to fix rates such as – in the 1980s and 1990s – the European Exchange Rate Mechanism (ERM) meant that we got large and sudden movements in exchange rates when speculators sensed that a peg could not be maintained, rather than the more fluid shifts of today.”
Of course, as always, it’s not the man who writes the cheques who ends up paying the bill. For those parts of financial services which won’t be able to just close up shop and relocate to another country, the tax will be passed on by the pantomime baddies in the industry to ordinary people. Savers, pensioners and tourists will find their pockets lighter as they pick up the bill for the new tax.
If banks make less money on their deposits, that means they’ll pass on the costs through lower rates to savers. If pension funds, who own most shares and bonds, find their profits are hit by billions of pounds of extra costs in so-called ‘Robin Hood’ taxes, that means pension payments will have to be cut. And if bureaux de change suddenly have to pay a tax on the trade with the customer and a tax on the trade in the customer’s currency into dollars and then another on the trade in dollars onto the currency the customer wants to buy (because this is, ultimately, how currency trading works), families going on holiday will suddenly find that commissions on their travel money suddenly start getting bigger.
Despite all this, the European Parliament voted by a wide margin (529 to 127) in favour. The Government must be very clear and oppose the tax without reservation.
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