Angela Merkel, right-leaning Mariano Rajoy, and the man dubbed 'Italy’s Tony Blair' all support it, so why doesn't George Osborne?
Angela Merkel, right-leaning Mariano Rajoy, and the man dubbed ‘Italy’s Tony Blair’ all support it, so why doesn’t George Osborne? asks Teresa Pearce MP
Last week leading EU Member States including France, Germany, Italy and Spain agreed to implement a Financial Transaction Tax (FTT) which will raise billions of euros for national exchequers across the continent.
Signatories to this communique include Europe’s most electorally successful centre-right leader in Angela Merkel, the equally right-leaning Mariano Rajoy in Spain, and the man often dubbed ‘Italy’s Tony Blair’, Matteo Renzi. Were it not for Francois Hollande, it might all look like a bit of a conservative cabal.
And yet one signature was missing: the UK’s. Fresh from wasting taxpayer’s money on a spurious legal challenge which even UK lawyers admitted “could be considered premature”, George Osborne has taken his unconstructive stance a step further this week in denouncing the EU FTT.
He could do with taking off the blinkers. As Alex Barker noted in the Financial Times, the FTT merely “represents a twist on one of the oldest taxes in existence: Stamp Duty. Introduced in Britain more than 300 years ago, it has long been applied to share purchases”.
The long history of this idea was covered on these pages recently and extends back, via forty countries who have implemented it, to the advocacy of Keynes and Lloyd George.
Stamp Duty currently raises £3bn each year in the UK when applied to share transactions, and around £9bn when applied to the sale of homes. I would be in favour of a reduction of stamp duty on house purchases rather than the ‘Help to Buy’ scheme which I believe to be deeply flawed.
But we need a constructive debate about the rates of stamp duty, the assets included with its remit, and the collection arrangements of its revenues. The UK is not getting this from the chancellor. His key charge that the EU FTT would be extra-territorial is, for one, rather undermined by 40 per cent of UK FTT revenue coming from non-UK actors on the one hand and the fact that, as the HMRC website notes, “if you buy shares in a UK company while you’re abroad, you still have to pay Stamp Duty” on the other.
No doubt weighing up the 51 per cent of Tory donations that emanate from the financial sector, Osborne has instead essentially chosen to lecture EU officials on the FTT. It would be, he declared, “a tax on jobs, a tax on investment, a tax on people’s pensions and pensioners”.
It is worth dealing with these points in turn.
The idea that it is a tax on jobs and investment is just terrible economics. Assuming governments took the money raised from an FTT, buried it in a hole in the ground, and then promptly forgot about it, a case might be made for this position. But, in reality, such a tax would raise billions in much needed revenue that can could be put towards practical, job creating purposes.
The IPPR and Ernst and Young have estimated that a broad-based FTT would raise £20bn each year in the UK. IPPR have argued this money should be put towards capitalising a British Investment Bank to stimulate lending to small business and infrastructure projects alike.
As Ed Miliband has pointed out, 85 per cent of lending to small business in the UK comes from just four banks. It is a tourniquet on growth. Capitalising the British Investment Bank from the excessive profits of the financial sector would not only work, but have a certain tidy logic to it.
Alternatively, Osborne could listen to the centre-right think tank Policy Exchange. According to PX, it would cost just under £5.5bn to lift the employers’ national insurance threshold to the point where no employers’ NI would be paid on the wages of 900,000 workers – something an FTT could pay for. Using the proceeds of an FTT in this way would therefore lower the cost for companies to employ more staff, and also help underpin existing jobs.
And when it comes to pensions and the FTT, we could take Osborne’s words at face value, or we could look to the analysis of Jack Gray – formerly head of investments at one of Australia’s leading pension funds. The FTT – as its name suggests – is a tax on transactions: you transact less, you pay the tax less. It is therefore a nudge towards the type of responsible, long-term capitalism Ed Miliband has talked about.
Gray concludes that “the FTT fits with responsible investment over longer-term horizons by discouraging funds from ‘inappropriate’ turnover in favour of more traditional and stable forms of long-term management. It would help reduce the likelihood of crashes and associated ‘credit crunches’ and increase capital flows to the real economy. It would materially benefit pension funds and the wider economy alike”.
Avinash Persaud, former head of currency at JP Morgan, agrees, saying “the principal victim of transaction taxes are those engaged in very high-frequency trading, as opposed to traditional pension funds, insurance companies and individual investors who turn over their portfolios less frequently….The tax will not be paid by ordinary pensioners and savers but prop-desks, hedge fund managers and HFTs”.
The crash eroded the value of both public and private funds in this country by up to 30 per cent. It is the market’s short-termism that is the real risk to people’s pensions, something an FTT could help to address.
The chancellor attempts to portray himself as the only reasonable voice amidst a sea of madness from countries in mainland Europe.
And yet in opposing the FTT, he is arguing against three-quarters of both the G8 and G20 who levy such taxes. He is ignoring the dozens of leading financiers, one thousand economists, and a majority of even Conservative voters. And, ultimately, he is arguing against the experience of our own successful FTT on shares in the UK. That is the very height of madness.
Teresa Pearce is Labour Member of Parliament for Erith & Thamesmead
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