For too long, the UK Government and many leading UK institutions have failed to see the extraordinary threat to our national interest posed by the Tobin Tax (technically known as the Financial Transactions Tax and popularly known as the Robin Hood Tax). A Holy Trinity of Bill Gates, George Soros and the Archbishop of Canterbury all now advocate such a proposal. On top of that, President Barroso is now actively pursuing plans to introduce the Tobin Tax across the EU – and soon (see here for a PwC summary of the proposals). And do not think that the UK can automatically veto any such plans. For it is quite possible that a Tobin Tax could be introduced under Qualified Majority Voting (QMV) – with devastating consequences for the City of London.
First, though, we should be clear. The Tobin Tax is a bad tax. And now, when it is essential that the financial markets can work as smoothly as possible to support growth, is an extremely bad time at which to introduce this. And yet the Chancellor has failed to oppose the tax directly. His cunning plan is to say that he is in favour of a Tobin Tax but only if it can be introduced across the world. Similarly, the Prime Minister yesterday acknowledged that here is "widespread support" for a Tobin Tax without taking the opportunity to dismiss outright the chance of it ever being introduced. And, at a recent CPS seminar, City institutions such as the Financial Reporting Council and the Financial Services Authority appeared completely unaware at moves in Brussels to introduce a Tobin Tax through the back door. The fear is that this complacency is based on ignorance of what is happening in Brussels.
Such complacency must be challenged. The Centre for Policy Studies is preparing a detailed paper which will reveal all the disastrous consequences of such a tax (and we would be grateful for any additional input to our efforts) but it is already clear (not least from the EU's own analysis) that a Tobin Tax would devastate financial services in this country. For example, the EU has itself admitted it would wipe out over 1.76% of EU GDP (over E200 billion); that 70% of the tax would come from the UK; that business would quickly emigrate to countries which had no such tax; that the €55 billion raised would eventually fall on end-users of the financial services (that is, you and me). And while a level of 0.1% on all financial transactions has been suggested, who could really believe that it would stay at that level for long? Just as there is nothing so permanent as a temporary tax, so too is there no tax so low that it cannot be raised.
But while the consequences for the UK are so damaging, consider the attractions of the Tobin Tax from the point of view of the EU. First of all, under current proposals, it hands the Commission the Holy Grail. For the first time, the Commission will enjoy its own source of funds -- €55 billion a year, every year. In perpetuity.(At the moment, all the Commission's income comes from the Member States whereas the Tobin Tax, as currently suggested by Barroso, would be the first tax that would flow directly to its coffers). And, on top of that, because it is seen as a way of "bashing the bankers", it is an extremely popular tax (not least because the political classes have failed to argue against it openly). Which other tax, raising €55 billion, wins the support of 65% of the electorate? It is no surprise then that Barroso, Merkel, Schauble and Sarkozy -- none of whom have shown much love for the City of London -- are all said to be pushing hard for this to be adopted quickly.
But how can this be achieved while the UK enjoys a veto on any EU proposals for a new tax? A recent Clifford Chance paper rules out the threat of introducing a Tobin Tax under VAT legislation (as had been previously reported). But it goes on to say:
"The FTT could be introduced under the "enhanced cooperation procedure" in the Eurozone or amongst some other subset of Member States. Enhanced cooperation requires that at least nine Member States participate. The decision to use enhanced cooperation is decided by QMV among the 27, and then unanimity would apply to the Member States participating in the FTT (unless they unanimously decide to switch to QMV). Such a "limited FTT" would still impact on the City of London, as UK banks doing business with Eurozone banks would be subject to the FTT; London branches of Eurozone banks would potentially be subject to the FTT on their worldwide business."
And be clear: a member may not veto the establishment of enhanced cooperation except for foreign policy.
The EU has never knowingly let a crisis go to waste. Could the EU resist the temptation of trying to bring this in now, not least as it would strengthen its hand after the Greek catastrophe?
All is not lost. The UK can stop this, and stop it now. But we should abandon cunning plans and the supine attitude exemplified by the failure of the City of London authorities to deal with tents at St Pauls. Rather, we must show the courage and conviction to state that this is a bad tax – and that if the subject (and all variations on it) is raised again by the EU, then the UK will unilaterally veto all forthcoming attempts to amend the EU treaties. Now is the time to bin the Tobin Tax.
The Centre for Policy Studies welcomes all constructive suggestions and offers of support in its efforts to head off the FTT. Contact Tim Knox at tim@cps.org.uk This e-mail address is being protected from spambots. You need JavaScript enabled to view it or on @timkcps or 020 7222 4488.
