Tobin: City gets its way - but many still back this 'sweet' tax

DAVID CAMERON'S refusal to sign up to a European pact that would impose a tax on financial transactions traded in the City of London means Britain will now be left on the sidelines of the new Europe, according to the Mole and other commentators.

It also means British government policy is out of step with a considerable weight of opinion that favours the imposition of an FTT, or Robin Hood tax as it is more popularly known.

It is not just President Sarkozy and Chancellor Merkel who want the tax on trades of stocks, bonds and other financial instruments imposed. As The New York Times reported this week, the billionaire philanthropists Bill Gates and George Soros, former Vice President Al Gore, Pope Benedict XVI and the Archbishop of Canterbury have all argued strongly for it. It has also become a rallying cry for trade unionists on both sides of the Atlantic and for the Occupy Wall Street movement.

Some see the tax – first suggested by the economist James Tobin in the 1970s - as ripe punishment for the bankers who got us into this mess in the first place. Others – led by Gates – see it as a way for the West to help relieve poverty in Africa. Merkel and other pragmatic European leaders see it as a ready source of desperately needed revenue.

"We all agree that a financial transaction tax would be the right signal to show that we have understood that financial markets have to contribute their share to the recovery of economies,"  Merkel told the German parliament recently.

Whether the motive is anger at the bankers or a desire to do good, its proponents argue that a tiny levy – as small as 0.05 per cent - is simple, understandable and has the potential to raise billions.

"The tax is a good idea because banks are where the money is. It’s the same reason Jesse James robbed banks,” said US nurses union leader Rose Ann DeMoro recently. "The thing about the financial transactions tax is it’s stunning how quickly people get it and how fast they embrace it."

Or as actor Bill Nighy, who made a very funny video promoting the FTT says, it is a "sweet" little tax. "It would raise enough money to solve problems at home and overseas, and it could do it without hurting ordinary people," claims Nighy.

Sadly, this is where his argument runs into trouble, according to the tax's opponents. It will hurt ordinary people, they say, mainly because of its impact on mortgage deals and pension funds.

Speaking a month ago, George Osborne said: "There are no banks that are going to pay this tax. The people who will pay this tax are pensioners".

He is not alone in taking this stand. According to The Daily Telegraph, the Dutch Algemene Pensioen Groep, APG, one of the world’s largest administrators of group pension schemes, wrote to the European Commission in early November warning that the tax would be a "tax on current and future retirees".

"The FTT [financial transactions tax] would hit ordinary pension savers very hard and would result in pensioners paying for the FTT through reductions in the value of their pensions," said APG.

In the US, the Obama administration is sitting on the fence. But Republicans had the idea. Glenn Hubbard, who chaired the Council of Economic Advisers under President George W. Bush, and is now an advisor to Mitt Romney, said recently it was a "monstrously bad idea".

"Such a tax isn't really going to get at the banks," added Hubbard. "It's going to hit the people who own the assets that are traded" - i.e. investors.

So, the Tobin opponents have got their way and City traders are ready to slap Prime Minister Cameron on the back on his return from Brussels. Or is it that simple?

On the BBC Today programme this morning, it was mooted that in order to prevent financial services companies decamping from Frankfurt to London to avoid the tax, the EU will likely rule that any eurozone-based company trading anywhere – including London – will be forced to pay up.

As for the longer term, Bill Gates, George Soros, the Pope – and Bill Nighy for that matter – are still men to be reckoned with. Even Cameron has admitted in the past that the tax could work if it was imposed worldwide. ·