You have to admire their honesty. During a recent tour of the City, Labour’s top dogs boasted of the party’s manifesto pledge to introduce a financial transaction tax should leader Jeremy Corbyn ever gain power.
The Tobin tax, which would apply to derivatives and bonds, has been fiercely opposed by UK officials and politicians in recent years. The EU wishes to introduce such a tax but the plan may, ironically, be thwarted by Brexit – many commentators now believe the determination to steal financial services away from London will trump Europe’s desire to raise bigger revenues from the trading of financial assets.
For Britain to go ahead with the tax unilaterally might be the craziest post-Brexit policy suggested to date. It would damage one of our key competitive advantages, the status of London as a leading global hub for capital-raising, and push jobs to rival cities. There is little evidence it would make markets more stable and could in fact have the opposite effect, while also hitting anyone with a pension.
Little wonder the policy has been slammed as “madness” by London mayor Sadiq Khan, and “less Robin Hood than Mickey Mouse” by new Liberal Democrat leader Vince Cable.
Labour’s position on the Tobin tax, enthusiastically promoted by Corbyn and John McDonnell, has put shadow City minister Jonathan Reynolds in a tough position. Reynolds, who is far more sensible than his current bosses, admitted to Reuters that he was sceptical of the policy in the past. However, he now argues that banks “need to continue to rebuild public trust and support, and the tax contribution from the sector is a significant part of that”.
The problem with this argument is the suggestion – repeatedly made by McDonnell – that banks are not already paying a huge bill to the Treasury in light of the financial crisis.
The bank levy and bank surcharge, both introduced by Tory former chancellor George Osborne, raised nearly £17bn in the six years up to 2016-17 (enough to fund the starting salaries of around 60,000 nurses and 60,000 police officers for each of those years).
Then there are all the other taxes contributed by our financial sector – a whopping £71.4bn was paid by financial sector companies in the year to March 2016, accounting for 11.5 per cent of all government receipts.
Labour’s new taxes would shrink Britain’s most successful industry, either killing jobs and investment or pushing them abroad. On this, economist Avinash Persaud – the inspiration behind Labour’s move – is clear. The sector is too big in the UK and should be cut down to size, he argues, telling Reuters: “in Britain and America, in the Anglo-Saxon countries, I do think [the financial sector] is too large.”
Again – you have to admire their honesty.