Leading article: A small tax that offers big rewards

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The idea of a tax on every financial transaction made by a bank or City dealer is not new.

Indeed, one variant of it is often called a Tobin tax, after the Nobel economist James Tobin, who came up with the idea in 1978 to penalise short-term speculators but not long-term investors. It is an idea whose time has come.

France and Germany have pushed for such a financial transaction tax (FTT) to be introduced Europe-wide. It would raise a tiny levy – of perhaps just 5p on every £100 traded in any shares, bonds, currency or derivatives deal that did not directly involve a member of the public. Now Bill Gates has joined 1,000 top economists across the globe backing the plan. Britain, on the other hand, is opposing the idea for fear it will damage the City of London.

Critics say an FTT is naive, impossible to implement and failed in Sweden when it was tried there. These are just excuses. Britain has had one of the biggest routine transaction taxes in the world – the stamp duty that has been levied on every share transaction since 1694. The tax would be no harder to collect than VAT. And the particular flaws of the Swedish system could easily be avoided.

A more selfish criticism is that it would make Britain uncompetitive. But unilateral schemes work elsewhere and could work across the eurozone or the whole EU. Britain would not have to agree – since Europe could levy the tax on any investor based in continental Europe even for deals executed in London. But Britain should not resort to special pleading. The best solution would be a global levy, approved by the G20.

In Europe, some argue that the money raised should go into general EU coffers. But some of it at least should go to the developing world. Such a "Robin Hood tax" would be popular. It would help to curb speculative trading, and be paid by the financial institutions held responsible for the current crisis. Polls show two-thirds of Britons back the idea. It is time George Osborne did the same.