Apparently the EU, yesterday (Tuesday 8th March), voted to support the idea of a Financial Transactions Tax (popularly known as the Robin Hood Tax) that would be Europe wide. The vote is not binding but it is a step forward because the argument that banks would move out of a jurisdiction that taxes transactions would be unlikely to apply to an area as large as the EU. Were such a tax created in the UK the banks might argue that the banks would move to Germany or some other European financial centre. However, one would imagine that they need a trading operation in Europe so they would not be able to move anywhere else.
And here’s one of the excellent videos they have produced:
So the Robin Hood Tax Facebook page posted this news today and it’s unleashed the most incredible argument. I say incredible argument because one would imagine that anybody who has pressed ‘Like’ on the Facebook page for the Robin Hood Tax
would largely be in favour of this. A little bit of debate might be expected but this debate has been almost vitriolic. It makes me wonder if we are witnessing a little bit of astroturfing
, effectively the existence of fifth columnists. Of course it’s possible to become paranoid but the reaction does seem to be extreme and the banks certainly have the resources and the guile to do this sort of thing.
Some people on the Facbook page seemed to be arguing that perhaps a Robin Hood Tax was not such a great idea. They then went on to repeat the line that the current government continually feed us that the Labour government was responsible for banking deregulation. That is a blatant lie and the most significant thing the last government was responsible for was that they had a leader who was unable to smile on camera without looking scary. Neil Kinnock was mostly berated for being ginger so we’ve not moved on in nearly twenty years.
This has led me to write something on the financial situation we are in at the moment
The Labour government didn’t deregulate the banks. They were deregulated on October 27 1986 (Big Bang Day) by Margaret Thatcher’s government. (Further UK deregulation followed throughout the eighties and the nineties but it was largely complete by the Millennium.) In the US the Banking Act of 1933 (Glass–Steagall Act) was steadily repealed starting in 1980 and finally in 1999.
This series of deregulations allowed high street banks to become involved in speculation. Massive amounts of cash, previously held in deposit (or reserve against hard times and bad debt) was freed up to speculate on the global markets. Those that got involved with the markets during this time made massive profits and those profits fuelled the unprecedented growth from the mid eighties to a few years ago. We all benefited from the boom time with the occasional recession, as is normal, but nothing like we have witnessed recently. During that speculation banks became involved in loans that were so obscure that the decision makers (top managers and directors) often didn’t know what was going on. (Often these financial arrangements could only be understood by highly qualified mathematicians.) Many more recent loans were risky but were at high rates of interest which meant that if they paid off they would make further great profits. In an attempt to hedge their bets they passed on those risks to other institutions around the world to the point where it was impossible tell which banks were safe and which were not.
Too big to fail
This would have been fine if the banks had only been involved in speculation. However, the repeal of regulations meant that this risk was spread to individuals like every one of us. Our savings and the finance of our employers were exposed to this risk. This is the origin of the concept of being too big to fail. Had the banks only been involved in speculation rather than high street banking then they could have been allowed to go to the wall. Instead, when their risks turned into massive failure we had to bail them out and now we have the massive deficits that we are trying to pay off.
Let’s all try to remember the recent past and try to be informed about what went before. If we want an opinion we have to be aware of the news. Don’t say, “It’s boring I’d rather watch X Factor.” None of us can have an opinion if we are not informed.
There are arguments against the Robin Hood Tax, namely that it will be passed on to those that use the services that the transactions are about. The excellent Tim Harford, Undercover Economist of the Financial Times, argues this case (also presenter of the whistle blowing BBC programme More or Less). If the tax was on the pension funds of each of us or on the foreign currency transaction that we make to go on holiday, then he would have a point.
This just illustrates that the tax needs to be directed towards those transactions that the poor and the average Joe does not have access to. In other words it needs to designed so that it is progressive. That is that it does not affect the transactions that the average Joe is connected to directly or indirectly. VAT is regressive because the poor have to pay it whereas the wealthy are more likely to have arrangements where they can source goods in other ways. Many financial transactions are described as socially useless and economically dangerous. If pension funds or the finances of employers are being milked by investment banks then those are the transactions that should be targeted. Don't tax the transactions that create social good, growth, investment in people's futures, etc. Tax the transactions that fall on the socially useless side of the fence. If the fence is complex, graduated and potentially shifting as the markets develop strategies to avoid the tax, then we design a tax to suit that complexity. Going to the moon was difficult, as was beating Hitler. We don't decide not to do something because it's difficult, unless the person saying that has a vested interest in us not doing it.