THE Prime Minister is wrong to dismiss the prospect of a financial transaction tax as he did again in Davos last week.
The ‘Robin Hood Tax’ would firstly generate a very large income for the exchequer, estimated at between £20 and £100 billion. This would be a huge help to getting the national deficit under control and help the Government with its admirable pledge to spend 0.7% of national income on international development by 2013.
The tax would levy 0.05% on a sector which Jose Manual Barroso described as ‘under-taxed’ in comparison with others.
How does a 0.05% tax generate upwards of £20 billion?
Well, such a small tax might be insignificant to a single investor but when you consider the huge number of transactions made each day then the numbers start to add up.
The markets exist to provide finance to industry and a transaction tax would actually, as Robert Peston has suggested, “increase the efficiency of the allocation of capital”.
Because it is a charge on the transaction, investors can avoid repeatedly paying the tax by sticking with an investment.
This would reduce market volatility and secure potentially profitable businesses with more engaged and committed investors.
The tax would hit hardest the short-term, high frequency speculators.
This wild trading can continue but at least with this levy these, in the words of Lord Turner, “socially useless” activities can generate revenue so that we can all profit.
David Cameron called the European moves to introduce this tax at this time “simply madness” and cites potential job losses.
But all taxes take money out of the economy and therefore restrict the jobs generated.
It is dishonest to pretend that this tax is worse than any other business tax.
And such a small tax won’t see traders flee the City, especially as a similar 0.5% duty has long been paid on UK share transactions.
The argument for a Robin Hood Tax is winning through and it would be a fitting contribution from a sector much in need of redemption.
Unfortunately it seems the vested interests are out to stop it.
MATTHEW WILKINSON, Group Chair, Fairtrade, Eastbourne,