A new report released yesterday aims to systematically dismantle critics’ exaggerated visions of the effects of an FTT on our economy. ‘The Economic Consequences of the EU Proposal for a FTT” report states that a Robin Hood Tax would be good for the UK’s economy, have a positive impact on jobs and growth, and cost the finance sector’s customers far less than the fees bankers levy themselves.
Furthermore, Professor Persaud, a former head of Currency and Commodity Research at JP Morgan, states that the EU’s proposed tax (which is less ambitious than we would like, but welcome nonetheless) would raise £8.4bn in tax revenue for the UK Treasury. It would, contrary to the EU’s own initial and flawed impact assessment raise GDP by 0.25%, equivalent to creating 75,000 jobs in the UK alone. However, the best myth-busting fact in his paper is the comparison between the impact on transaction costs of a 0.1% rate on derivatives, and the amount of money that bankers take out of the system in fees and charges, which amount to tens of billions every year.
The report also points out that the proposed FTT rate of 0.01% – 0.1% is rather modest when compared to other transaction costs such as trading commissions, fees for clearing and administration costs. An FTT would only increase transaction costs to levels seen ten years ago, when arguably the markets were more stable. Seven countries already raise £15.3 billion annually through long standing FTTs. One of the largest and most successful examples is right here in the UK – the stamp duty on shares that raises the government more than £3bn a year.
Even if a Chinese investor uses a French bank in New York to buy a British share, they would still have to pay the tax. This means far from it leading to a loss of business in the UK, around 40% of the tax is paid by non-UK residents.
According to the report, critics’ analysis is “dangerously incomplete” since it focuses only on where the revenue is collected and not where it could be spent. An estimated £8.4bn of additional revenue in the UK could have a huge positive impact: it is enough to avoid all cuts to the education budget, halve cuts to the annual welfare budget or fund the Green Investment Bank three time over.
More fundamentally, a low-rate FTT would would help reduce ‘noise trading’ – a churning mass of short-term speculation that feeds off underlying market trends. Such trading intensifies the boom times, helping to create a mirage of value, but also helps to exacerbate the busts, when in a flash, it disappears.
Professor Persaud asks his fellow bankers the entirely pertinent question: if something as small as an FTT would allegedly cause such damage to investors and the operation of the markets, how much more damage is being done by the fees and charges which dwarf the revenues likely to result from the tax?
This report has received great coverage in the mainstream media and online. Here’s a selection of the best: