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Josh Ryan-Collins is a researcher in the Business, Finance and Economics team at nef.
And yet another group of big business chief executives have signed up to the Conservatives’ policy to reverse Labour’s proposed 1% increase in National Insurance. Should anyone really be surprised that businesses would rather not have to contribute to reducing the public deficit? No, the interesting thing about this media furore is how few alternative suggestions are being promoted by any of the major parties in the run up to the election. The tax debate remains stuck in the ‘old economics’.
Critics of Labour’s policy are right that it is a tax on labour or ‘jobs’. But what is less clear is that government ‘efficiency savings’ are not equally a tax on jobs in the public sector. Anyone who thinks public agencies can achieve the kind of cuts the Conservatives are proposing without major redundancies is living in cloud cuckoo land. And given there are proportionately many more jobs in the public sector in the poorer areas of the UK one could also argue that cutting public sector budgets is more regressive than taxing business.
But it doesn’t have to be a zero-sum game. The ‘new economics’ is about replacing taxes on what we do want – productive jobs, investment in high quality public services – with taxes on what we don’t want.
And everyone’s pretty clear on what we don’t want. We don’t want fossil-fuel intensive production or transport. We don’t want another housing boom. We don’t want massive windfall profits for energy suppliers because its been a cold winter. We don’t want huge bonuses for bankers who have made speculative short-term profits by playing with our pensions or retail deposits.
If we tax these areas we not only raise revenue to meet the budget deficit, but we also steer our economy in the right direction and provide incentives for more productive investment. A land value tax, for example, would act as automatic brake on speculative booms in the housing market and might encourage us to invest our savings in industry rather than non-productive property. A carbon tax or rationing system would incentivise investment in renewable energy schemes and encourage more sustainable consumption. A financial transaction tax (FTT) would slow down and shrink the ‘socially useless’ finance sector.
Plus, these schemes would also be progressive, a land tax stopping the widening wealth gap between home owners and tenants, a carbon tax redistributing from rich to poor in most cases (as demonstrated in the recent report by the Green Fiscal Commission) and an FTT would bring city pay back down to earth.
This is not rocket science. And its not simply a call for more ‘green taxes’, although even that seems to have dropped off the political radar. It’s a call for a taxation system that promotes ‘economic goods’ and punishes ‘economic bads’. A new economics of tax can be win-win for the economy, society and the environment as well as improving the public finances. Lets hope the party (or parties) that come in to power in May feel able to turn over a new leaf in the tax debate.
Andy Wimbush is nef‘s Communications Officer and blogmaster.
Lord Turner was at his iconoclastic best last night. In a lecture to the Cass Business School in London, the chairman of the Financial Services Authority once again questioned the value of Britain’s swollen financial sector and called for tougher regulation on City activities.
“We need to challenge radically some of the assumptions of the past 30 years,” he told the audience, “and we need to be willing to consider radical policy responses.” According to Turner, there are a range of ideas that need to be taken out of the “index of forbidden thoughts” and brought into the mainstream.
Among those radical policies was, pleasingly, the idea of a Robin Hood Tax on financial transactions, proposed by nef back in 2001 and now the subject of a major campaign from a coalition of NGOs, faith groups and trade unions.
Lord Turner also reflected on an interview last year in which he branded much of the activity in the financial sector as “socially useless”. “People have asked me whether I regret those comments,” he said, “The answer is no, except in one very small respect, which is that I think it would have been better to use the phrase ‘economically useless’ or ‘of no economic value added’.” This echoes nef‘s recent report A Bit Rich which found that Elite City bankers (earning £1 million-plus bonuses) destroy £7 of value for every £1 they create.
Turner’s comments come less than a week after the publication of new research showing that London has lost its unique position as the highest ranked financial centre in the world: it now shares that status with New York. The banking lobby has tried to argue that the news should make Government cautious about increasing taxes and regulation on the financial sector.
Here at nef, however, we have long argued that finance should be the servant, not the master of the economy. The protracted financialisation of the UK economy has not brought benefits to everyone. Around 3 million people in the UK still lack a basic bank account, and small businesses find it increasingly hard to obtain loans, as banks moved away from local, high street level activities to prioritise speculation and short-term profiteering. The more we can do to reconnect financial services with the real economy – and especially disadvantaged communities – the better. We might also do well to refocus attention on neglected areas of the economy – such as agriculture and manufacturing – in anticipation of the necessary transition to a low carbon food and energy system.
Lord Turner’s comments show that, contrary to what been said by some defeatists in the movement for a just and sustainable economy, there is still plenty of opportunity to introduce new ideas and challenging, radical policy proposals. The door that was flung open by the financial crisis hasn’t closed yet. So let’s delve deep into that index of forbidden thoughts and see what works. If you’re curious, you can start here.
Rupert Crilly is a researcher in Environmental Economics at nef
Financial markets are treacherous. I’m not saying this because I’ve lost a lot of money to them recently- oh wait, we all have! – but because they’re pathologically antisocial yet somehow exotically enticing. They’re the new femmes fatales. No matter how many times we wine and dine them, and how many times we pay for it, they’ll keep us hooked.
The financial markets have been jittery with speculation about Greece defaulting on its debts- unsurprisingly, really, if we consider that Greece has the highest gross government debt as a percentage of GDP in Europe- somewhere around 125%. And, many ask, if Greece does default, what will happen to other countries with high debts, such as Spain and Portugal? Will they survive the same financial attacks – if interest rates rise the deficit effectively increases because of rising interest on the bonds – or will they show more ‘fiscal responsibility’.
Lecturing for Stable Economics
On Monday evening the Nobel-prize winning economist Joseph Stiglitz gave a talk at the London School of Economics in which he noted:
“The irony of this attack should not go unnoticed: the fact that Europe and America were brought into the current mess because of the failures of the financial system. Their deficits grew in the attempt to save the banks and the economy as a result of the financial system failure, and now the financial systems are lecturing the governments about the size of the deficits that their behaviour created…the fact is that the financial markets are again exhibiting the same kind of irrationality and short-sightedness they continually exhibited. What matters is not one side of the balance sheet, it’s both sides. Deficits are a liability, but on the other side are assets: it depends on how you spend the money. And if you spend the money well, on education, on technology and infrastructure, the returns only have to be 5-6% for the long-run national debt actually to be lowered, and the banks should understand this.”
In other words, a ‘credible’ response to tackle the Greek government’s debts does not mean cutting money from health, education, technology and the environment to pay back bond holders – it means instead that lenders understand that investment in these sectors will secure their repayment over the long run. The economic cases for more regulation and a ‘Robin Hood’ tax are also strong. But, I suppose, the markets are worried. And we’re still hooked.
The governments of Europe and America bailed out the financial sector and stimulated the economy. The deficits now need repaying, and it’s becoming clearer who’s going to pick up the tab. Our message to the banks is clear: “don’t worry, we’ll get that”. Because, honestly, we really will get that, and we really, really don’t want you to worry about it.
Sargon Nissan is a researcher in nef‘s Access to Finance team.
As you’ve probably already seen, today saw the launch of a major campaign to introduce a Robin Hood tax on financial transactions by a host of organisations working on issues of global and domestic poverty, international economic reform and social justice. Bill Nighy and Richard Curtis have produced a great little film explaining the tax’s merits and appropriateness and nef is just one of the organisations backing this campaign.
The Robin Hood tax would impose a very small fee for every financial transaction between financial institutions. That means it is not a tax on the financial services you or I would use. It is intended to make those who brought our economy to its knees, massive multi-national financial institutions, pay for the $20,000,000,000,000 (that’s twenty trillion dollars or a third of global GDP) of bailouts, guarantees and quantitative easing they have benefitted from. Here in the UK we’ve spent more than $ 1 trillion (£635 billion) to bail out our banking sector.
Very conservative estimates suggest it could raise £100 billion for domestic and international issues, helping to limit how far we have to cut public services in the UK and ensuring that we meet our commitments to the developing world to alleviate poverty. At a rate of just 0.05% per transaction, and given the huge sums taxpayers have stumped up, it seems a no-brainer in terms of being an appropriate and feasible policy option.
It may seem uncomfortable to line up the usual cast of celebrities and endorsements. It may seem too good to be true. But it actually gets better. Read the rest of this entry »
Andy Wimbush is nef‘s Communications Assistant and blogmaster.
Today sees the start of a campaign to introduce a tax on financial transactions in the banking sector that would raise billions to save vital public services, green the economy and tackle poverty.
Called The Robin Hood Tax, the campaign bears the same name as a report nef wrote back in 2001 with our colleagues at War on Want, which outlined why a transaction tax – sometimes called a Tobin Tax – would stabilise volatile markets and raise funds for international development. The Green New Deal Group also recommended a Tobin Tax in their latest report, The Cuts Won’t Work.
Even at a rate as low as 0.05 per cent on each transaction has the possibility to raise hundreds of billions each year. And when the banks have been saved at the taxpayer’s expense, it’s only right that we should see some return from it. And surely even the most self-assured banker – even one played by Bill Nighy – couldn’t be opposed to that.
nef is very proud to be part of the broad coalition of NGOs who are calling for this tax. You can show your support by signing your name on the Robin Hood Tax website.
Andy Wimbush is nef‘s Communications Assistant and blogmaster.
The Tobin Tax is back in the headlines again, with Gordon Brown now insisting that support for a levy on financial transactions is growing. I’ve also noticed that our friends at the World Development Movement are starting to campaign in this area. nef made a case for the Tobin Tax way back in 2001, with our report Robin Hood Tax.
All of which gives me license to reprint a cartoon I published in the last edition nef‘s newspaper, Radical Economics. Enjoy!
Andy Wimbush is nef‘s Communications Assistant and blogmaster.
Large parts of the City have grown too big and need to be cut down to size, if necessary by imposing new taxes, according to the chairman of the Financial Services Authority.
Lord Turner of Ecchinswell, an influential figure in the reform of banking rules in London and beyond, said that the City had grown “beyond a socially reasonable size”, accounting for too much of national output and sucking in too many of Britain’s brightest graduates.
“I think some of it is socially useless activity,” he said, adding that the financial sector had “swollen beyond its socially useful size” and seemed to make excessively large profits.
Lord Turner named fixed-income securities, trading, derivatives and hedging as areas that have grown beyond socially optimal levels, adding that fund management and share trading might also have grown too big.
Lord Turner added that he would favour City-specific taxes if his proposed new rules on capital failed to shrink investment bank balance sheets and curb the more useless or reckless trading. “If increased capital requirements are insufficient, I am happy to consider tax on financial transactions, Tobin taxes,” he told a discussion organised by Prospect magazine.
nef has been long been proposing that regulators curb the power of the financial sector with taxes, and using the revenue generated to finance more socially beneficial schemes. Back in 2001, when the current recession was just a glint in the speculator’s eye, we wrote a report with War on Want in which we proposed a “Robin Hood Tax” or Tobin Tax to divert funds away from the global currency market into funds for peace and international development.
When the report was released, nef Policy Director Andrew Simms argued that a tax of this kind would be “an automatic and politically painless way to help pay for international targets on sustainable development”. Today, when the voting public are still furious about continued bonuses and profiteering in the City, the tax would not only be politically painless, but politically therapeutic. And there are even more uses for the money raised: it could be used to power a Green New Deal, create an adaptation fund for poor countries who are feeling the effects of climate change, kickstart a Post Office Bank which would help small businesses and financially excluded communities… the list could go on.
We’ve also repeatedly said that the banks need cutting down to what Turner calls a “socially reasonable size”. Our post-crunch reports From the Ashes of the Crash and I.O.U.K. both propose de-merging the biggest banks, and separating speculative trading from the retail, high-street banking that all of us rely on.
Such proposals remain radical, but they’re no longer marginal. In an FT column that begins “The Climate Camp has come to Canary Wharf”, Turner is nicknamed “Swampy” for his ideas, but the article concludes that
Lord Turner has a perfect right to start stirring up discussion about how to shrink a wholesale financial sector that has, he says, “swollen beyond its socially useful size”… Let the debate begin.
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