The cries of outrage began even before José Manuel Barroso had finished making his formal announcement yesterday that the European Commission plans to bring forward legislation for a financial transactions tax (FTT). The tax will apparently mean banks move to other territories. It is, we are told, a thinly disguised attack on the City, because London is Europe's largest financial services centre. Also, it will supposedly be complicated to introduce and administer. It is all so predictable – and disappointing.
The British Government's official policy is based on the first of these views. The current Chancellor has consistently opposed this tax on the grounds that unless it was introduced everywhere in the world, the City would lose business to FTT-free jurisdictions.
To which there are at least three responses. The first is to point out that actually, London is a real-life case study of how this sort of tax does not automatically mean financial institutions go elsewhere.
The UK is unusual in that it already has an FTT. It is called stamp duty and it applies to all purchases of equities. So how come, on George Osborne's thesis, London is still such a thriving centre for equity trading?
Second, Mr Osborne insists he has no objection in principle to the tax, just a practical concern about London losing business. In which case, why doesn't the Chancellor choose to expend his energy making the case for the FTT to the rest of the G20, rather than battling against it back home in Europe? Wouldn't that be a more constructive use of his time?
Third, it is worth remembering that the point of an FTT, as envisaged by James Tobin in the 1970s, is not simply to raise revenue, handy though that money will prove. It is also to incentivise long-term investment decisions over short-term speculation, where frequent trading, which adds to market volatility, would attract much greater charges.
For a time, the campaign for an FTT looked dead in the water. But with Bill Gates among those pushing the case for the tax at the G20, and much of Europe signed up too, it now has a chance. We are not going to be able to persuade every major financial jurisdiction in the world to sign up on day one. But if that is the test for any new reform, we are never going to do anything.
The FTT does not have to be all or nothing. If enough countries agree to levy the charge, we will get past the fear of losing our competitive edge – and we should not be afraid to make pariahs of the jurisdictions that refuse, let alone the minority of companies that choose to move to them.
That thought applies to Europe too. If Britain vetoes an EU-wide levy, the eurozone could still adopt the FTT – and make pariahs of us.Reuse content