Making banks work for Britain

Britain’s banks are not pulling their weight. Trapped in the shadow of the financial crisis, the rest of the country is sucked dry by government cuts and a sluggish economy while banks and financial organisations continue on as normal. Barely touched by the bank levy, bonuses are still paid and tax payers still wait to have their bailouts returned to the public purse. The financial industry (the most profitable industry in the world) rests under-taxed and seemingly ignores the responsibility it has for this crisis in the first place.

Ed Miliband’s commitment to responsible capitalism is the firm foundation that a fair banking sector needs. But this pledge needs real implication in policy. 
We need the banks to work for us, and not the other way around. At Christians on the Left, we have a commitment to financial sector reform because we believe that it’s obliged to help clear up its own financial mess.

The provocatively named Robin Hood Tax, or to give it it’s does-what-it-says-on-the-tin name the Financial Transaction Tax (FTT), is an incentive specifically proposed to make the financial sector serve Britain. It is a reform that we at CotL believe passionately in: a policy that we fully support.  We’re not alone, as over 50 charities and organisations are also behind the Robin Hood Tax movement (you can take a look at this here), which has been diligently campaigning for the FTT since 2010. These organisations, including Christian Aid and UNICEF, trust that the Robin Hood Tax would turn the “global crisis into a global opportunity”.

The idea of a Robin Hood Tax is not new. Indeed, it was proposed as far back as 1936 by Keynes, who argued for the introduction of a tax on transactions on Wall Street as he believed this would reduce speculation and, thus, volatility of the market. James Tobin, influenced by Keynes, extended this idea to currency conversions in order to discourage short-term foreign exchange investments. Though similar to this Tobin Tax, the Robin Hood Tax is a package of financial transaction taxes. Rather than solely on currency, the Robin Hood Tax would be 0.05% on transactions such as stocks, bonds, foreign currency and derivatives.  

Not only is this not a new idea, but financial transaction taxes are already in use today. In the UK, we implement this type of tax on shares, which is known as Stamp Duty. Though this is a step in the right direction, stamp duty is avoidable and actually larger than the proposed financial transaction tax. In 2011, George Osborne also introduced a Bank Levy, however this and stamp duty have been undermined by the lowering of corporation tax.  Other countries, such as Switzerland, Japan and France also have a form of FTT. Furthermore, the European Union is in the process of implementing a 0.1% FTT, which is supported by eleven member states. The Robin Hood tax isn’t a radical new idea, it is a tried and tested means to make the financial sector more socially responsible.

CotL believes that there are three ways that a financial transaction tax makes the banks work for Britain. Firstly, it is morally right that this sector contribute its fair share in tax, especially considering its role in the crisis. As Taxation and customs union commissioner 
Algirdas Šemeta explained, "Taxing the financial sector is a question of fairness. Banks and financial institutions received – and continue to receive – massive support from the public sector to overcome the crisis." As previously mentioned, the financial sector is under taxed and yet, the IPPR shows that the UK sector could afford a further £20 billion in taxation. 

Secondly, the money raised from this tiny tax would go a long way in tackling poverty both at home and overseas. The Robin Hood campaign highlight the revenue that would be generated by the FTT as it’s main reason for supporting it.  They believe is should be split three ways: half to address poverty in the UK, a quarter to fight poverty abroad and the last quarter to tackle climate change both here and overseas. The campaign also give examples of ways that the money could be spent: £4 billion in the UK halves child poverty, £4 billion overseas puts every child in primary school, £2 billion avoids housing cuts and £110,000 saves 350 libraries. 

However, the economic advantages don’t  stop there, as research shows that the side effects of a FTT could be a drop in speculation, in automated trading and short-termism – a nail in the coffin of casino banking and a strong step towards truly responsible capitalism. Politicians like Boris Johnson are against the tax, believing that banks would and should move when it’s implemented in the EU. But the FTT is shown to be difficult to avoid. The FTT is designed small so that, as the IMF has said, it will 
“not automatically drive out financial activity to an unacceptable extent”. Not only this, but London’s position between time zones made it an attractive base. The success of stamp duty (which, though possible to avoid by trading in derivatives rather than shares, is not avoidable by moving abroad) shows that the Robin Hood Tax could be extremely successful, and with other major EU countries also backing this tax, the UK wouldn’t be alone in making the financial sector pay its fair share. 

Lastly, the financial transaction tax is democratically popular. A recent Eurobarometer poll found that 61% of Europeans are in favour of the FTT, compared to 26% not in favour. In the UK, this percentage of those in favour rises to 65%. This popularity is a reflection of the anger felt by everyday people who have paid for the problems caused by the excesses of a small financial sector minority. We all want our banks to work for us.

Of course this is only one of many policies designed to make capitalism more responsible. Christians on the Left have written a document outlining both macro and micro economic changes that we believe are integral to having a fair system. However, financial transaction taxation is a popular and simple way of making banking work for Britain. With European Union implementation on the agenda and the cuts effects starting to bite, the time for UK adoption of the Robin Hood Tax and all of its positive implications on poverty and climate change is now.
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