Assessing the Government's position on a Financial Transaction Tax

By Pascale Palmer
November 23, 2011

At the G20 Cannes Summit my colleague Tina Weller accused David Cameron of being cynical for hiding behind the likes of Barack Obama and Julia Gillard, by choosing only to support taxes on financial transactions as a nice idea in theory.

Tina is CAFOD’s in-house economist and has been watching the growing furore over the Financial Transaction Tax post-G20 as Cameron has continued to stir up the Eurozone. I chatted to her yesterday to find out her take on what the situation is to date.

“Implementing the so-called Robin Hood Tax, Cameron argues, is something we can only do in practice if other governments change their minds and decide to do it too, or we risk killing the golden goose of the UK economy.

“Perhaps we shouldn’t be too surprised – we’ve seen this approach before. The UK government has proclaimed it would lead the way in the past – to be the greenest government ever – only for George Osborne to state at the Conservative party conference, that it would only be the greenest-ever when all other European nations were too, and not at the expense of UK business.

"The implication is, of course, that if you support these ideas then you are helping let slip the dogs of war against UK business. And ultimately against UK workers and citizens who will suffer more at a time when unemployment in the UK is hitting 2.62 million and growth is slowing to practically zero.

“The case is hardly proven – the truth is that no one knows what impact a Robin Hood Tax will have until it happens. But heavyweights such as the International Monetary Fund are claiming there will be no cry of havoc: they believe that relocation of financial services will be minimal and measures can be taken to avoid it. The City can easily afford this tiny tax as profits still vastly outstrip other sectors and continue to grow.

“But more importantly the Robin Hood Tax, like efforts to tackle climate change, are much more than nice ideas in theory, they are urgent and essential. Eight million children are dying of preventable diseases every year. Two million people die prematurely every year as a result of man-made climate change, and many more – 30 million in Asia alone – are displaced as a result of climate-related disasters.

“According to a recent report by governments (including the UK) and international institutions – dubbed the “Leading Group”, the funding gap for fighting poverty and climate change is around $324-336 billion per year. According to Bill Gates’ report to the G20, if countries meet their aid commitments (a big if) this will raise only another $80 billion annually. That’s still quite a shortfall that a Robin Hood Tax could help to make up - to the tune of about $30 billion in the UK alone.

“As the Leading Group puts it: ‘If the global community fails to fund the required mitigative and adaptive measures, we face a shared risk of global economic, financial, social and environmental instability, which would undermine the foundations of globalisation.’

“To put it more positively, as Gates does, we have a strong shared interest in tackling poverty and climate change.

“Poverty has a strong dampening impact on growth, ending it would boost demand in developing countries and give the global economy a much-needed lift. Poor water and sanitation cost sub-Saharan African 5% of GDP per year. The Joseph Rowntree Foundation estimates that child poverty costs the UK £25 million per year.

“More human and moral arguments for the tax, rather than economic, are probably motivating Church leaders and a large proportion of the British public, who have also put their weight behind the tax. The Vatican’s Pontifical Council for Justice and Peace called for such a tax on the grounds of “principles of social justice and solidarity”.

“As leaders prepare to meet in Durban to discuss action on climate change and finding new sources of much-needed finance, Cameron has the opportunity to show leadership and do the right thing for society, the economy and his conscience.”


© Pascale Palmer is Senior Policy Media Officer for CAFOD.

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