A bank transaction tax would win votes.
Myleene Klass and Ed Miliband on ITV’s The Agenda.
You can’t just point at things and tax them,” declaimed the former pop star Myleene Klass on 17 November, becoming overnight a perhaps unexpected pin-up for the right.
Klass made her comment on ITV’s The Agenda as part of a longer rant aimed at her fellow panellist Ed Miliband, who wants to introduce a “mansion tax” on properties worth more than £2m. (What’s Klass complaining about? She sold her own home for a very modest £1.8m in 2013.) The Labour leader produced this rather feeble response: “I totally understand that people don’t like paying more in tax.”
Myleene and Ed are both wrong. First, governments can “point at things and tax them”. The 1st-century Roman emperor Vespasian levied a tax on urine; until the mid-19th century, the British government had a tax on soap. These days, in the US, different state governments tax different things: Alabama taxes playing cards; Arkansas taxes tattoos; Colorado taxes napkins; Kansas taxes hot-air balloon rides. “Pointing and taxing” is a perk of holding office.
Second, raising taxes isn’t always unpopular. Miliband’s “mansion tax” has the support of 72 per cent of voters, although he omitted to mention that on The Agenda. There is a range of other popular taxes out there, begging to be implemented or increased. The next Labour government, for example, could pledge to tax the UK’s 2,600-odd private schools – as the shadow education secretary, Tristram Hunt, has hinted it might – by scrapping their ludicrous “charitable” status and saving the taxpayer about £100m a year. Only 15 per cent of voters think such schools should be allowed to keep their tax-exempt status.
Or Labour could listen to that notorious lefty John Major and impose a windfall tax on the profits of the “big six” energy companies, which are expected to rise by an astonishing 108 per cent in 2014. Public support for such a move: 52 per cent. It could even add a penny to the basic rate of income tax to help fund the NHS – 60 per cent of voters who expressed a view said they would support such a hike.
Then there’s the financial transaction tax (FTT) – also known as the “Tobin tax” or the “Robin Hood tax” – which has the support of 61 per cent of voters. It was conceived in the 1970s by the Nobel Prize-winning economist James Tobin as a small tax that could be applied to currency transactions to “throw some sand in the well-greased wheels” of international financial markets.
In 2013, it was resurrected by the European Commission as a proposed 0.1 per cent tax on the exchange of shares and bonds and a 0.01 per cent tax on derivatives and has since attracted support from 11 EU member states, including France and Germany.
You might think UK politicians, looking for new sources of revenue to help reduce the deficit, would be falling over themselves to sign up. You’d be wrong. George Osborne, a wannabe leader of a Conservative Party that derives half its income from the City of London, spent £68,000 of UK taxpayers’ cash trying (and failing) to persuade the European Court of Justice to strike down the commission’s FTT. The shadow chancellor, Ed Balls, a former City minister, says he backs a financial transaction tax – but not without the participation of the US.
A Tobin tax won’t raise much revenue, says Osborne, and won’t work unless it is global, says Balls. There are two pretty simple responses to these objections. The first is academic: a 2011 review of the evidence by the economists Neil McCulloch and Grazia Pacillo concluded that an FTT is “feasible” and “could make a significant contribution to revenue”. The second is practical: we already have a mini-version of an FTT in the UK – how else to describe the UK’s 0.5 per cent stamp duty on shares, which raises £3bn for the exchequer each year?
This isn’t just about raising revenue, either. In 2009, Adair Turner, the then Financial Services Authority chairman, grabbed the headlines when he backed an FTT on the grounds that the City was “too big” and much of its activity “socially useless”.
Austerity having kicked in globally and the mega-banks having dusted themselves down with bailout money and continued with business as usual, the list of FTT supporters has expanded over the past five years: from the billionaires Bill Gates and Warren Buffett to the former JPMorgan executive Avinash Persaud, plus the Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz. In 2011, 1,000 economists – including Columbia University’s Jeffrey Sachs – signed an open letter to the G20’s finance ministers throwing their combined intellectual weight behind the FTT. (Sachs, incidentally, doubles up as a “personal adviser” to Osborne on development issues.)
And consider some of the numbers involved. According to the Bank for International Settlements, £3.3trn was traded each day on the foreign exchange markets alone in 2013. According to the Austrian economist Stephan Schulmeister, a global FTT at a rate of 0.01 per cent could raise roughly £180bn. According to the Institute for Public Policy Research, a British FTT on its own could bring in £20bn.
It really is a no-brainer: a tax that is popular with the public and backed by the experts and would raise revenue for the UK exchequer, while helping to stabilise a deeply unstable sector of the UK economy. As the 1,000 economists pointed out, an FTT is “technically feasible” and “morally right”. It is, you could say, a tax whose time has come. Even Myleene Klass might agree.
Mehdi Hasan is an NS contributing writer and the political director of Huffington Post UK, where this column is crossposted