Financial Transaction Tax and Economic and Monetary Union Debate
Full Debate: Read Full DebateStephen Doughty
Main Page: Stephen Doughty (Labour (Co-op) - Cardiff South and Penarth)Department Debates - View all Stephen Doughty's debates with the HM Treasury
(11 years, 2 months ago)
Commons ChamberGDP is a measure of productivity, but it is not a measure of wealth, and it is not a measure of growth in the real economy. Derivative volumes have ballooned out of all proportion to the growth of the real economy. Some would say that that says much more about rent extraction by the financial services sector than a real world story of genuine and proportionate insurance.
When the global financial crisis hit in 2008, many banks were weakened precisely by their exposure to derivatives. In fact, Warren Buffett has described them as financial weapons of mass destruction. They have traded those derivatives at ever-increasing speeds. It is the institutions that are heavily involved in high value, high frequency derivative trading that would feel the biggest impact of the FTT, and whose riskier activities the rest of society has a vested interest in reining in. That is precisely the point that my hon. Friend the shadow Minister made. The public want to see these activities curtailed to reasonable levels such that they reflect the genuine risks of economic growth.
It was Avinash Persaud, the former J.P. Morgan and UBS executive, who in the Financial Times recently commented:
“this small tax on churning would limit some of these activities and help to refocus the financial system on to its purpose of the safe financing of real economic activity.”
That is a good thing and we should be open to the idea of exploring it with our colleagues across the water.
My hon. Friend is making some strong points. Does he recall Lord Turner describing some of the activities to which he is referring as “socially useless capitalism”?
My hon. Friend is absolutely right. The public want politicians to get back to focusing on the real productive economy. They are bewildered, frankly, by the spin-off of derivatives. I was on the floor of the New York stock exchange when it all went belly up on 24 September 2008, and I remember discussing what all the turmoil was about with members of the Senate Banking Committee in Washington a couple of days later. When I returned to the UK, it was clear that people could not understand how things had become so far divorced from reality.
The hon. Member for South Northamptonshire (Andrea Leadsom), who is unfortunately no longer in her place, made the point that an FTT on derivatives might hit pensioners. I do not think that is a convincing argument. Pension funds are obviously vital to our economy, and they buy derivatives to insure against the risk of poor performance by their portfolio, but those funds are much more likely to hold their derivatives until they reach maturity, which means that they would have to pay only a tiny amount under an FTT because their trades are far fewer—the very opposite of the type of short-term, superfast trading that grew in the run-up to the crisis. Most of the burden of paying the FTT would fall on superfast traders and speculative exchanges, which are very far removed from the real economy.
I want to introduce another note into the debate before sitting down. Our Government, along with many other participants in the United Nations framework convention on climate change, have stated that there will be a green climate fund. That fund will have to raise $100 billion each year by 2020—that is the minimum that the UK and our European negotiating partners think will be necessary to help developing countries increase their own economies, reduce poverty and offset the impact of dangerous climate change. The FTT would be an extraordinarily adept mechanism for raising those funds, which are vital to real growth in our economy. If we look at the UK economy, we will find that only 6% relates to the green economy, yet that 6% provided 30% of our economic growth in 2011. I would like to see the funds from the FTT predicated to use in the green climate fund.
There is no case for a financial transaction tax. It would be enormously destructive of this country’s financial system. The cascade effect to which the Minister referred is at the heart of this. When things are being traded dozens of times a day, what starts off as a little tax suddenly becomes a very big tax. The hon. Gentleman conjures £10 billion out of the air. We cannot withdraw £10 billion from the economy without it having an economic effect and without it being paid for by somebody.
The hon. Gentleman is making a dramatic and scaremongering speech. If the FTT is such a terrible idea, I wonder why people such as Bill Gates, George Soros and, indeed, 1,000 of the world’s leading economists, backed the principle of such a tax.
I seem to remember that 365 economists said that Margaret Thatcher had got it wrong in 1981, but one great and noble Prime Minister had got it right and 365 economists were flawed in their thinking. I would back the British politician against a collection of academic economists living in an ethereal world.
A financial transaction tax would ultimately be paid for by the British people through higher housing costs, lower pensions and possibly through higher Government borrowing costs leading to higher overall taxation. Of course the Labour party wants higher taxation, because that is what it has always been in favour of—more taxes, more spending and a worse economy.
I would now like to move on to the points made by my hon. Friend the Member for Stone (Mr Cash), because they, too, are extremely important. They relate to the European Union’s ambitions to become a superstate based on the euro. I accept that we are outside the euro, but that is not entirely a protection from the development of the EU along the lines of a single state with a single Government based in Brussels. Of the papers we are considering today, there is one from the European Commission showing that it wants within 18 months to have a eurozone seat on the International Monetary Fund’s board, that it wants within five years to co-ordinate eurozone tax and employment policies, and that it wants a political union with adequate pooling of sovereignty with central budgets as its own fiscal capacity and a means of imposing budgetary and economic decisions on its members. That means a single Treasury and a single fiscal union.
The danger for us is that, as the European Union obtains more powers for the eurozone, our association with it will become very different from the present one, and one in which we have little influence over what happens because we are outside it. Alternatively, we could get dragged into the arrangements because, as our experience of the European Union shows, our opt-outs will ultimately expire. We have seen that happening with the social chapter, and we will see it again next year with the decision on title V of the Lisbon treaty. We should therefore be very careful about the ambitions of the European Commission in relation to this single government for the eurozone.
We should also be cautious about what the President of the European Union, Mr van Rompuy, has to say. He has published a paper lauding the success of the euro and all that it has done. It states:
“The euro area needs stronger mechanisms…so that Member States can reap the full benefits of the EMU.”
That is a fascinating way of phrasing it: “the full benefits”. After all the other benefits that they have so far received, there are further benefits to give the member states if only they will join a tighter system of governance. I wonder whether the unemployed Greek youths have noticed all the benefits that they have received from this wonderful beneficent eurozone.
Mr van Rompuy has also been kind enough to say:
“‘More Europe’ is not an end in itself, but rather a means for serving the citizens of Europe and increasing their prosperity.”
I am proud to say that I am a subject of Her Majesty, and not a citizen of Europe. The idea that we need more Europe to benefit the citizens of the member states is palpably false. The more Europe we have had, the worse the situation has become. The more powers that have accreted to Europe, the more bureaucratic, less democratic and worse run has become the whole system of the European Union. The economies of the European Union have suffered because of the euro.