Finance (No. 3) Bill

Debate between John McDonnell and Bill Esterson

Tuesday 5th July 2011 Commons Chamber

[John McDonnell]

Yes, I had forgotten that example. It is a good example of how unilateral action can raise the standard overall across Europe and globally.

Another issue raised in our debate on the Tobin tax a number of years ago concerned whether it would be practical. Things have moved on since then and the system for undertaking financial transactions is highly automated and centralised. New systems have been put in place, and I refer Members to the study by the Institute of Development Studies that identified how the system now operates:

“The Continuous Linked Settlement Bank, launched in 2002, now settles more than half of all foreign exchange transactions, with the remainder processed through national real-time gross settlements systems.”

Now we have the systems in place, through advances in new technology, to monitor the process and thereby ensure that tax is collected easily and that avoidance can be prevented.

[Bill Esterson]

My hon. Friend just mentioned avoidance and the problems that it causes. Does he agree that if avoidance was the reason for not doing what he proposes, the Government would give up on collecting any taxes? Avoidance of tax is a far greater problem than any to do with claiming benefits, yet the Government focus their energy on benefits and not on tax.

[John McDonnell]

The main argument on the Tobin tax involved the inability mechanically to identify the transactions and therefore levy the tax. I think that that has been overcome with the new systems.

The avoidance issues will concern migration to tax havens and elsewhere and the report on this tax would have to address them, but we must also attack them more generally. That is why I was so disappointed that my amendment on that subject was not called for debate. That is another issue, however, that I shall raise at another time.

Financial transaction taxes have been introduced elsewhere in the world. In fact, they have been identified in about 40 countries—including ours, with stamp duty. Another question that was raised concerned whether, if we introduced this tax, it would be passed on to the customers. That is a concern, but the report we receive from the Government can consider how to design the tax so that it is targeted at the casino banking that has resulted in this crisis and so that we can protect ordinary people and businesses.

The key point about this tax is that, as the IMF study said, it is “highly progressive”. It falls on the richest institutions and individuals in a very similar manner to capital gains tax. As for the competition element and whether the cost will be passed on to customers, thereby hitting individuals harder, the finance sector is competitive and institutions that try to pass on the cost of the tax to customers will find themselves attacked through a shortage of business.

Another argument that has been made more recently is that this tax could help to assist in addressing high-frequency trading, where transactions happen every few seconds. There has been a huge increase in the number of transactions to do with derivatives. The volume of such financial transactions is now 70 times the size of the world economy and commentators have argued that that is dangerously large and destabilising. Lord Turner, the chair of the Financial Services Authority, said that many such speculative transactions are socially useless. Many of them are based on extremely small profit margins, so even a low rate financial transaction tax of 0.05% would reduce the size of the market by reducing the profitability of these risky transactions. In that way, it would contribute to stabilising the economy overall.

I do not want to delay the House. Many Members have considered the issue in some depth as a result of the lobbying, but for all the reasons I have given I agree with the 1,000 economists who wrote to the G20 summit. This is an idea whose time has come. Issues still need to be addressed, which were set out by Neil McCulloch in the IDS study, but the principal issue is political will. I hope that we can display political will across the parties and across the House to move on this matter.

I finish by quoting from the letter from the 1,000 economists to the G20:

“The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society.”

The letter says that a Robin Hood tax is not only “technically feasible”, but “morally right.” That is why I invite the House to support my amendment.