Row breaks out over Gordon Brown's plan to tax City profits

International levy on financial trading would help developing world deal with climate change
Kathryn Hopkins and Heather Stewart
The Observer, Sunday 8 November 2009
A row blew up last night after Gordon Brown promoted plans for an international tax on City dealing that could raise funds for the world's poor and help developing countries tackle climate change.
No sooner had the prime minister floated the idea of a tax on bank transactions than it was shot down by US treasury secretary Timothy Geithner, Canadian finance minister Jim Flaherty and Dominique Strauss-Kahn, the head of the IMF.
At a G20 meeting in St Andrews, Scotland, Brown said the "social contract" between financiers and the British public had broken down and needed to change. Keen to show that Labour would be tougher on bankers than the Conservatives, who are leading the row over bonuses, the prime minister urged fellow world leaders to back plans for a "transaction tax", which could be used to meet the costs of future banking bailouts, and to fund development projects, including helping developing countries to develop greener technology.
However, he then suffered a series of rebuffs – led by Geithner, who said that "a day-by-day financial transaction tax is not something we are prepared to support". The reality is that without American backing the move would collapse. Flaherty said: "We are not in the business of raising taxes, we are in the business of lowering taxes in Canada. It is not an idea we would look at."
Strauss-Kahn was also unimpressed, saying he believed such a tax was unlikely to be adopted as "transactions" were difficult to measure.
Brown had demanded that "there must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards". He stressed that for the levy to work, it would need to be implemented worldwide. "Let me be clear: Britain will not move unless others move with us.
"I do not in any way underestimate the enormous and difficult practical and technical issues that will need to be overcome that a globally cohesive system raises. But I do not think these difficulties should prevent us from considering with urgency the legitimate issues I have discussed."
Following his success last year in leading the international debate on the rescue of banks, the prime minister is determined to push himself forward as a leader of other global initiatives such as the fights to limit climate change and to combat poverty in the developing world. But on this occasion his views received, at best, a mixed reception. After Brown's intervention, G20 finance ministers asked IMF experts to complete by April a detailed study on how such a tax could be levied, to allow world leaders to make a decision on whether it should be implemented.
The prime minister's conversion to the idea, which is commonly known as a "Tobin tax" after the Nobel prize-winning economist who first proposed it, stunned the anti-poverty campaigners who have long fought to force a transaction tax on to the economic agenda and have been repeatedly rebuffed by a pro-City Labour government.
"A tax on banks would be a major step towards clearing up the mess caused by their greed," said Max Lawson, senior policy adviser at Oxfam. "People aren't just losing their jobs. The economic crisis is killing people in Africa. We must see the banks pay back something."
Claire Melamed, head of policy at ActionAid, said: "If world leaders can't take the bankers by the scruff of the neck and start shaking the transaction tax out of them at this point, then they never will. This is a test of whether we can force the financiers to make a bigger contribution to society, from which they make their profits."
Global revenues from the tax could be up to £420bn a year, according to an authoritative Austrian study. They would be divided between the country where the trading took place and an international fund, which could be used to tackle poverty or climate change. For Britain, with its status as one of the world's largest financial centres, if just half the revenues were retained by the Treasury, it could bring a windfall of £45bn.
France and Germany have championed the tax, but until now the British government has resisted it.