A Robin Hood Tax - We Can’t Wait
The campaign for a Robin Hood Tax is nearly five years old, although the idea on which it is based goes back to John Maynard Keynes. The case for it is based on two key wrongs that need righting and the trade union movement worldwide, as well as economists, development charities, environmental campaigners, faith groups and others believe it to be one of the best answers going.
First, the world is not going well. Despite the achievements of the Millennium Development Goals, we have not yet abolished poverty. Climate change continues to wreak havoc around the world both through extreme weather events and in changes in crop growing patterns, sea levels and biodiversity. The global economy, still to recover from the financial crisis of 2008, may – left and right agree – be on the brink of another shock. Meanwhile, public services have been cut, UK wages have fallen in real terms for longer than ever before and unemployment continues to outstrip job creation worldwide.
Second, the global financial system has not been adequately corrected after the crisis. Investment decisions are still too short-term, even where they occur. Too often, the savings built up by the super-rich as a result of relatively untrammelled globalisation are devoted to financial speculation or ever more risky loans in exactly the way the sub-prime mortgage bubble was inflated. And bankers’ bloated bonuses remain the most visible sign of a global reward system that spins the wealth the world creates ever faster towards the top of the employment hierarchy.
Could a tiny tax like the Robin Hood Tax (perhaps 0.5% of the value of traded stocks and shares, maybe even a hundredth of that, 0.005% on derivatives and currency transactions) really make much difference? I think so.
The simplest attraction of any tax is of course the revenue it might generate to do good things. Estimates are always uncertain but the most conservative suggest that a Robin Hood Tax would raise an extra £20bn in the UK alone – more in the rest of the EU, and perhaps ten times that if applied globally, with the USA the major source of potential revenue. It’s worth noting that the UK’s existing financial transactions tax, Stamp Duty on stocks and shares traded by individuals (financial institutions being largely exempt), raises about £3bn a year on just a fraction of the market.
That money could be devoted to paying for the costs of global climate change, massively increasing overseas aid budgets and restoring some health to public finances. It could pay for more nurses, more childcare, more teachers.
And it would come from one of the least taxed activities in the economy. The International Monetary Fund accepts that financial transactions, exempt from levies like VAT for a number of reasons, are generally under-taxed. Yet since governments have made the pledge (with taxpayers’ money) to keep the banks afloat regardless, those financial institutions receive an implicit subsidy worth around £100bn a year due to reduced interest costs on their own borrowing.
But beyond the revenue raised, the most important argument for a Robin Hood Tax is the impact it would have on financial sector behaviour. It would reduce significantly the incentive to speculate on the money markets. Some classes of activity, such as high frequency trading (described by Lord Turner, former CBI Director General and now Chair of the Financial Services Authority, as ‘economically useless’) , might get wiped out altogether, with little or no downside.
Overall, it would make investment in the real economy correspondingly more attractive while providing greater security for such investments because the more often the money is moved around, the higher the cost – the grit in the wheels that James Tobin wanted to apply to the then much smaller financial markets.
This is the fundamental case for a Robin Hood Tax: it would be a tiny tax that could do great things.