EU: Financial Transaction Tax (EUC Report)

Lord Liddle Excerpts

Tuesday 17th December 2013 Grand Committee

[Lord Liddle (Lab)]

My Lords, I declare an interest as the chair of the Policy Network think tank, which produced the report for the City of London Corporation on the future of financial services in Europe. It is available on our website and includes reference to the financial transaction tax.

The Opposition applaud this debate. We agree with what my noble friend Lord Harrison said. He posed a number of relevant questions to the Government and the Minister that need to be answered. A rethink of the financial transaction tax is probably under way in Brussels at the moment. I remember, as a naive young man, reading the article by the Nobel laureate James Tobin which first proposed a version of the financial transaction tax and being very impressed by it. However, it was always clear that it was a very difficult proposal. It would certainly be difficult to make it work unless there was a transatlantic agreement—in the modern world, it may not be possible to do it even then.

Enhanced co-operation raises hugely difficult issues in this area. Under the treaty, enhanced co-operation can go ahead only where it does not do damage to the member states that are not taking part. Therefore, the Government were right in this case to mount a legal challenge. I am not normally of the view that one should conduct one’s engagement in the European Union by mounting legal challenges—negotiation is much better—but in this case, where enhanced co-operation was being pushed ahead in a way that was detrimental to other member states, they were right to take the matter to court.

Anyone who has talked to people on the ground knows that this proposal has run into great difficulties, that many of the member states that initially supported it are having very serious second thoughts and that it is almost certain that the Commission proposals will be heavily revised. We do not know what the outcome of that will be, but the existing proposal looks pretty dead in the water.

However, noble Lords have to take into account the extremely strong feeling on the continent—and in this country—that it was the financial sector that caused the crisis and it is the financial sector that has to pay for the consequences of its irresponsibility. Of course, that is not an argument for a financial transaction tax but that is the principle on which a lot of the political momentum behind this proposal is based. It is linked to the idea that when things go wrong in future there should be bail-ins, not bailouts, and is intended to provide revenues for dealing with bank resolution in the future.

In Britain we have raised taxes on the financial sector. The bank levy is now going to be £3 billion by 2018-19, and stamp duty will be a similar amount. So £6 billion a year, more than we raise in wine duty, vehicle excise duty and inheritance tax, will come from specific taxes on the financial sector. We should talk to our partners about much more effective ways of taxing the financial sector across the Union and get rid of this unfortunate enhanced co-operation proposal.