Member Article

Tobin Tax could be damaging to financial services

Conservative think-tank, the Centre for Policy Studies, has suggested that a proposed “Tobin Tax” could still damage the UK financial services industry, even with a UK veto.

The CPS has suggested that French and German banks will still have to impose the financial transaction tax, making London less competitive on the international stage; even if the UK vetos the move.

Authored by John Chown, the report sets out why the FTT would not enhance market stability, curb “undesirable financial activity,” raise funds for good causes, and suggests its burden would fall on consumers rather than bankers and traders.

The report states: “Given that markets are international and mobile, the tax would be imposed most successfully (with the maximum impact of the Cascade Effect) on non-financial organisations (using the markets for their real and intended purpose).

“In these cases, the tax will be passed on and will be an additional cost to manufacturing and service organisations and, indirectly, to pension funds and charities.

“An FTT will to this extent raise revenue with (probably moderate) direct damage. But most of the final bill will be paid not by banks but by consumers, employees and pensioners.

Mr Chown also states that subsidiaries of German and French financial institutions could be affected if it were shown that the risk in any transaction had been passed back to the parent company.

The report goes on to say: “Any legislation for an FTT (whether on an EU-wide basis or within a set of member states) will be enormously complex; and will be subject to many years of legal dispute (which would probably have to be settled at the ECJ).

“The resulting uncertainty could only be severely damaging to the UK financial services industry.”

Gary Stockdale, co-founder and head of investment at Vertem Asset Management, commented: The Tobin tax is really just a populist political football used by ailing politicians.

“The real issue is creating a corporate structure where professionals are not rewarded for taking risks with other peoples money.

“Remuneration and performance evaluation needs to judged on a risk adjusted basis, and on the sustainability of the activity undertaken.

“Until this is achieved, the financial system will not be a positive force for society. We do not need a tax, what we need is a cultural change.”

Simon Walker, director general of the Institute of Directors, said: “A financial transaction tax would distort markets severely and drive energetic trading away from our shores.

“IfBritain or Europe sends the message that we don’t welcome people who want to invest and create wealth, then there are plenty of other countries who will be happy to welcome them with open arms.

“Contrary to some portrayals such a tax would not simply hammer the rich, it would harm pensioners, employees and consumers.”

This was posted in Bdaily's Members' News section by Tom Keighley .