UK isolated as City put before country

ONCE again the Conservative/Liberal Democrat coalition backs bankers before the UK: “Britain will veto any attempt to introduce an EU-wide financial tax” (your report, 9 January).

A financial transaction tax (FTT) is a small levy on each transaction undertaken by a financial institution. It could apply each time a City trader buys shares, sells currencies or agrees a futures contract, and a rate averaging just 0.05 per cent on each transaction could generate tens of billions of pounds additional revenue in the UK alone.

In the wake of the financial crisis, there is broad agreement that the financial sector is under-taxed and should pay its way by contributing more to the real economy. There is also concern that excessive speculation of financial traders, particularly in markets such as food prices, drives up costs to consumers and harms the real economy.

Support for an FTT has increased since the financial sector returned to profitability in the past two years, just as the public sector and the real economy face the worst effects of the crisis.

The Bank of England reported in June 2010 that the increased proportion of income paid out by banks in pay and bonuses cost around £10 billion, which could have supported around £50bn of lending to the real economy.

Last year, bank bonus payments alone were about £7bn, despite ongoing government and Bank of England support to banks, including around £120bn of direct government holdings in banks. By taxing speculation rather than real investment, an FTT would also help rebalance the economy away from the small financial elite of traders and towards the greater needs of the real economy.

An FTT would: cut dangerous speculation; raise money to meet global development and climate change mitigation commitments and raise money to meet domestic priorities for investing in our economic future. In the UK, the FTT campaign is being championed as the Robin Hood Tax (RHT) campaign proposes dividing revenues with 50 per cent spent on domestic poverty reductions, 25 per cent on international development and 25 per cent on climate change mitigation.

Chancellor George Osborne has refused to back the FTT in EU discussions and Tory MEPs have consistently voted against all calls for an FTT in the European Parliament. This has left them isolated as the only group which does not support an FTT in any form. In government, the Lib Dems are backing Osborne’s position but prior to the election they signed up to the RHT campaign.

The European Commission has accepted the case for an FTT, suggesting the revenues should be used to reduce current national budget contributions to the EU. This would cut the cost of the EU to families and small business, while enabling governments to spend more on domestic and international priorities.

The UK has a limited FTT in the form of a 0.5 per cent stamp duty on share transactions. This raises vital funds each year – about £3bn in 2010 – and hasn’t damaged the City of London’s role as a key financial centre. A well-designed broader tax could, therefore, increase UK tax revenues and also help cut excessive speculation and so help the real economy, which is vital for the UK’s recovery.

David Martin MEP

Midlothian Innovation Centre, Pentlandfield

Roslin, Midlothian