Cameron warning to G-20 on "Tobin" tax

PM heeds advice to oppose "Tobin" tax

Presentation to Chancellor on October 18 bears fruit
ERS

David Cameron has poured cold water on proposals – backed by the buffoonish Archbishop of Canterbury who dubbed a transaction tax as a “Robin Hood tax”  - to be levied on financial transactions, claiming that some European countries were merely backing the levy as a way to wriggle out of their commitments to increase overseas aid.

Mr Cameron will make it clear at the Group of 20 summit in Cannes on Thursday that Britain will not support a tax unless it is implemented at a global level – something which is highly unlikely to happen because of opposition from the US, Canada and some Asian countries.

The levy – sometimes also wrongly called a Tobin tax – was endorsed on Wednesday by economically unaware and uneducated Rowan Williams, Archbishop of Canterbury, in a Financial Times article. He cited dubious guesses that it might raise more than $400bn globally each year for aid projects and boost the “real” economy. As if!


Nicolas Sarkozy, French president, is hosting the G20 summit and promoting the idea, while Wolfgang Schäuble, German finance minister, told the FT this week that the European Union should introduce the tax if the rest of the world refused to participate. The German threatened that Germany might force the euro zone members to act unilaterally if necessary, a strategy that may cost him his job soon.

Mr Cameron told the Commons on Wednesday that while he supported the financial levy “in principle”, he suspected that some European countries saw the idea as an excuse for failing to meet commitments to raise aid spending to 0.7 per cent of gross domestic product.

“We must be careful that we don't allow other countries, including some European countries, to use a campaign for this tax – which they know is unlikely to be adopted in the short term – as an excuse for getting off their aid commitments,” Mr Cameron said.

The levy, which might be applied to share, bond, currency and derivatives transactions, would have a major impact on the City. According to the European Commission’s own estimates, roughly 62 per cent of the revenues generated by an EU tax would come from London.

The proposal is understandably widely opposed in London, with everyone from bankers and asset managers to brokers and traders arguing that it will raise costs and make the City uncompetitive.

“European policymakers are pricing all of the EU’s financial centers out of the global marketplace. What is the use of creating a level playing field within the EU, if we can no longer compete with other financial centers outside the union?” said Stuart Fraser, policy chairman of the City of London.

If the euro zone were to go it alone on the tax – as suggested by Mr Schäuble – the effects on the UK would be mixed.

That is largely because the tax would apply to any transaction where at least one party was based in the euro zone. London’s non-European derivatives would be unaffected, and the City might pick up some business from multinationals who can move their derivatives transactions out of the euro zone.

But many London-based transactions involving a euro zone counter-party would simply become too expensive and would not take place at all, cutting sharply into what is currently a thriving business.

Mark Field, Conservative MP for the City, says that while a solely euro zone 'Tobin' tax might give London a short-term advantage, he believes an “all powerful” single currency area would then propose other taxes to cut London’s advantage.

Andrew Tyrie, chairman of the Commons Treasury committee, wrote to Chancellor George Osborne on Wednesday, seeking details on how an EU Tobin tax might affect Britain’s financial services industry.