Time to pay up!

David Hillman explains why taxing the financial sector has never been so important - and why success may only be a few months away

October 1, 2011
10 min read

 

I’d like to start (perhaps controversially) by thanking Goldman Sachs for helping to get the Robin Hood Tax campaign off the ground. Of course, they didn’t mean to, indeed what they did rather backfired, but still credit where credit’s due. You see, on our first day, we launched a short video, starring the actor, Bill Nighy, as a banker. It was written by Richard Curtis of Blackadder and Notting Hill fame, and is both funny and informative in equal part.

Thousands of people saw it and were able to vote ‘Yes’ or “No’ at the end, indicating if they were in support. By lunchtime, the voting pattern seemed clear: ‘Yes’ votes outnumbered “No” votes by ten to one. But at the end of the afternoon the ‘No’ votes rapidly shot up so both counts were neck and neck. I phoned our IT department.

“Is there a problem”, I asked, “This doesn’t look right”. “We know”, they said, “We’re checking it out now”. Sure enough something was wrong. Very wrong! It turned out the sudden surge of ‘No’ votes were all coming from one IP address. A Goldman Sachs address. “Can you prove this?” I asked, at the end of the day on learning the news. “Oh yes, we’ve captured the IP address”. “But this is gold”, I said, “This is a much better story than our launch”.

And so it proved to be, with the front page headline in the Guardian two days later, reading: “Goldman Sachs, Goldman Sachs, clicking in the votes”. I particularly enjoyed it when one of the presenters on the Today programme sang this headline to the theme music of the classic Robin Hood TV series. We could not have bought such publicity. Our Facebook group grew to more than 100,000 in days (it now stands at nearly 300,000) – the Robin Hood Tax campaign had arrived with a bang!

Why this, why now?

But let’s back-track, what is the Robin Hood Tax, what are we trying to achieve, why is what we’re asking for so important and relevant now, and what’s the likelihood of success?

We want to see a tax on financial transactions, but not the type of transactions you and I do – we’re talking about taxing transactions involving bonds, derivatives and multi-million pound deals in foreign exchange. Such huge volumes of money are traded everyday that even a very small tax, as low as 0.05%, would raise £20 billion of additional income in the UK alone. This could be used to save jobs and protect front-line services at home and help poorer countries hit by the economic crisis and in the fight against climate change. And whilst assisting people in the developing world may not be so popular in the recession we now find ourselves in, it is important to remember that poorer countries did nothing to cause the financial meltdown but as things stand they will pay for it with lives lost whilst we pay for it with livelihoods ruined. Our commitments, particularly to their health needs, must not be forgotten or relegated.

But raising additional money is not the only purpose of the Financial Transaction Tax. Some readers will know the proposal began its life as the Tobin tax (named after the Nobel prize-winning economist, James Tobin). His idea was a tax on certain financial transactions to help regulate the market by “putting sand in the wheels” of the financial system: essentially, reducing the amount of purely speculative activity, where the profit margins are often very small, so even a low tax would disincentivise trading.

A relatively new phenomenon called ‘high-frequency algorithmic’ trading means Tobin’s insight is now more relevant than ever. In some markets, more than 50% of the trades are now executed with no human involvement at all through the use of high-speed programmes that, for instance, buy and sell shares in fractions of a second. In a now famous incident a few years ago, a US trading firm went bust in just 17 seconds when an employee accidentally switched on the algorithm. It took the firm about an hour to realise they were out of business. This kind of trading activity is clearly playing with fire. A point not lost on the German Finance Minister, Wolfgang Schauble, who has come round to the view that both for its regulatory impact and for its revenue-raising potential, the FTT is now an idea whose time has come.

Even extremely unexpected voices, such as John Fullerton, the former MD of JP Morgan, have now become advocates. In a recent article he wrote: “More money, improved market resiliency we desperately need, and a reallocation of capital to productive long-term investment that fuels sustainable growth, creates jobs, and in the process reduces government deficits makes a Financial Transactions Tax a win-win-win.”

Feasibility

Taxing financial transactions is a no-brainer technically. The process is automated – tax is collected when deals are settled.

Critics say ‘but the banks will pass the costs on to us’. Well, tell me when did you last trade bonds or derivatives? Ordinary people don’t do these transactions. Banks and hedge funds do. The primary incidence of this tax will, therefore, fall on them.

Other critics say ‘but the banks will take flight and leave the UK’. And however tempting it is for us to say: “well, bye then”, we do need our banking industry, so is this a serious threat? No, it’s nothing more than blackmail. Banks can’t just up sticks and go to say Singapore. They need to operate in a country that can underwrite their activities should anything go wrong. This leaves them very few options. Realistically, only the US or a major European country, none of whom (certainly in current economic circumstances) would entertain taking on the liability of a major British bank. So these are empty threats designed to scare decision-makers and should not be taken seriously.

Finally, there’s ‘but you need all countries to implement the FTT or they will simply move trading somewhere else to get around paying the tax’. This is also totally untrue. It depends completely on the design of the tax. In fact, over the last few decades, in more than 40 countries, either on a permanent or a temporary basis, FTTs (often on equity trading) have been implemented. One of the most successful is the UK’s very own FTT on share transactions, which at 0.5% raises about £4 billion a year. Well-designed, you cannot simply re-locate trading. As a result the tax-take is high and the London Stock Exchange is one of the most robust in the world.

Transition and progress

Interestingly, although the Robin Hood Tax campaign initially put great store on the taxing of currency transactions (because at $4 trillion a day it is the world’s richest market and still outside of the reach of the taxman), this year has seen us put far greater emphasis on countries replicating the UK’s very effective FTT on shares, advocating that this can then be extended to bonds, derivatives and ultimately foreign exchange. This change in approach has proved extremely compelling, making a nonsense of the UK Government’s position “that the measure has to be global to work” since it evidently works extremely well on a unilateral basis.

This seemingly subtle shift has locked in place a powerful foundation to our activities in 2011 paying a dividend over the last few months of significant political progress most particularly in Europe. In March, MEPs voted overwhelmingly in support of the FTT. Jose Manuel Barroso, the President of the European Commission, has now tabled FTT legislation. Germany has made it clear that even if the measure is vetoed (say by the UK) they will push it through at the Eurozone level anyway. Finally, Bill Gates, in his role as adviser to the G20 on where to harness new sources of development finance, has come to the view that the FTT will work and is timely; and can bring his not inconsiderable influence to bear at high level with various Governments in the coming weeks.

President Sarkozy, host of the forthcoming G20, in a recent speech in Paris broke new ground when he said: “With Angela Merkel, we defend the idea of a tax on financial transactions. Our goal is for Europe to set an example of what can be done, and for others to align themselves with this initiative at the G20 Summit in Cannes.” So are we finally passed the tipping point?

Passed the tipping point?

Not surprisingly, our friends in the financial sector have become rather agitated by the way in which events are now unfolding. They’ve been used to living on ‘easy street’ for more than 30 years and their party may be about to be rained on. A few weeks ago the Robin Hood Tax website came under sustained cyber attack with 80 million hits to one page which brought the site down. Will the Sheriff of Nottingham stop at nothing to kill off Robin Hood? Whereas on the first day of the campaign we knew the attack came from Goldman Sachs, such was the sophistication of this assault that we havn’t a clue who unleashed it. But clearly we’re upsetting somebody. And perhaps that’s not surprising! After all, this is turning out to be an unusual period in history with the status quo and vested interests being challenged in ways thought unimaginable at the turn of the year. From the fall of regimes in the Arab Spring to the loosening of Murdoch’s stranglehold on British public life, actual change has at last proved to be possible. The power of elites can be taken on. If the cause is just, we can win.

And this cause is just. The banks have got to pay their fair share, especially given that they caused this terrible mess in the first place. Gandhi said about campaigning: “First, they ignore you, then they laugh at you, then they fight you, then you win”. Well, I guess, if they’re starting to fight us, we must be on the home straight. With the G20 in November, with its host, France, advocating for the FTT, the winning line appears to be in sight. For all their wealth, power and connections, let’s not let the banks and the hedge funds squirm off the hook at the last second. Now is the time for the financial world finally to pay up!

David Hillman is coordinator of Stamp Out Poverty – one of the founding members of the Robin Hood Tax campaign, a coalition of more than 100 UK charities, trade unions, green organisations and faith groups. To play your part in the campaign, please visit: www.robinhoodtax.org.uk


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