26 January 2013

Robin Hood and our Tax System

Robin Hood, as we all know, stole from the rich to give to the poor, so it comes as no surprise to find that the modern day tax for which his name has been appropriated, doesn’t find favour with our current government. Nonetheless earlier this week you may have seen that a group of 11 European nations, including both France and Germany, agreed plans to introduce a Financial Transactions Tax – the so-called Robin Hood Tax. The tax would be a very small charge on all financial transactions such as foreign exchange, bond, share and derivative deals. Because the value of these transactions is so great – foreign exchange turnover is well over $4,000 billion a day (source BIS), around half of it traded in London – even a small percentage tax will raise billions of pounds for the governments which implement the tax. 

Here in the UK though the government refuses to implement the idea, despite the fact that London being the largest financial centre in Europe would mean that they stand to raise more than any other government; perhaps up to £20 billion a year. The tax would – according to our government – damage the competitive position of London in the global financial markets. It says it would only participate if the tax were to be levied globally, something which it well knows is not going to happen. But is London’s competitive status really so weak that a tax of 0.01% (£100 on a million pound deal), the likely rate on currency and derivative transactions, going to undermine it.

Meanwhile the Confederation of British Industry threatens that the tax would adverse impact on people saving through pensions and other investments, ignoring the fact that most pension funds do not engage in currency speculation or intensive use of derivatives. It would be “damaging for jobs and growth”, well perhaps for a few in the investment banks, but what ridiculous exaggeration.

This is just part of a pattern which sees companies – with their high level access to government allowing them to influence policy (see Guardian article) – setting an agenda which favours ever lower corporate taxes, not just here in the UK but across the world. Accountants PwC reported lastweek that tax payments by a group of 100 largest UK listed and headquartered companies fell by 18% last year despite their profits having gone up. This continues a trend in payments going back to 2005 which has seen the corporate tax take reducing. And this isn’t through tax dodging, which sees the likes of Starbucks and Amazon moving their profits around to low tax countries; it’s a result of government cuts in corporate tax rates; cuts which are set to see the corporation tax rate fall significantly further in the next couple of years. Competitive tax reductions may move a small number of jobs from one country to another, but have far more influence on raising profits than on economic growth. All this is supposed to boost our economy, but I don’t see much sign of that happening, do you?

The financial crisis was triggered by the reckless lending and speculation of our banks and the British and European economies are still struggling to come to terms with it. A transaction tax on the speculative activities of those same banks could both alleviate the burden of cuts which are being imposed on the poorest sections of society and potentially reduce the risk of a recurrence in the future. The only losers are the investment banks and their massively well rewarded employees. How sad that our government has chosen to side with them, rather than with the overwhelming majority of the people of Great Britain.

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