Gather round, comrades. Under the approving gaze of his glorious leader Jeremy Corbyn, the new shadow chancellor John McDonnell is going to outline Labour’s ‘new economics’ at the party conference in Brighton today. Well, sort of. At least one policy he’ll unveil is something for which he’s personally campaigned for years – a financial transactions tax (FTT or ‘Robin Hood tax’).
This is essentially a tax on trading stocks, and has been touted as another way of raising funds from the banks as reparations for the financial crisis. Apparently the banking levy and corporation tax surcharge weren’t sufficient.
As a way of increasing the tax burden on the financial sector, a Robin Hood tax does have one clear advantage. Unlike the levy or surcharge, it specifically targets speculation in shares. Banks paying the FTT may well pass the charge onto investors, discouraging them from making short-term deals to profit from movements in the share price.
That doesn’t sound too bad, right? Speculation adds only instability to the economy, so surely we’d be better off with less of it, especially if that pays for the odd hospital here or there. The problem of course is that Britain does not operate in an economic vacuum, so can never really be insulated from stock market instability.
London is either the world’s top or second-placed city for financial services. Unlike the global profit raiding corporation tax surcharge, an FTT would increase the cost of these services in Britain, as well as penalising banks for doing more business here, in both cases hitting one of Britain’s most significant export industries. As importers aren’t exactly queuing up to buy our coal or steel (SSI announced today that it’s mothballing its Redcar plant, with the loss of 1,700 jobs) this would be a problem.
If the Robin Hood tax were imposed on top rather than instead of the surcharge under a future Labour government, this problem would be compounded. It could be the last straw for big banks like HSBC and Standard Chartered, which are already considering emigrating to warmer climes.
Of course, much would depend on exactly what the details of the policy are. There’s an FTT and an FTT, after all. France, for instance, has one that’s less burdensome that Britain’s modest stamp duty on share transactions.
Indeed, it’s important not to jump to conclusions with any of the other policies associated with Corbynomics that McDonnell has spoken about since taking his new job – including a higher top rate of income tax, adding an economic growth target to the Bank of England’s current inflation-oriented remit (possibly manifested through ‘people’s QE’) and setting up a ‘people’s investment bank’.
These could end up so watered down as to be positively mainstream (dare we say Blairite?) by the time they end up in the party’s manifesto. McDonnell has said Labour’s economic policies will be ‘tested and tested again’, and has appointed several leading (though largely left-leaning) economists – including Thomas Piketty and Nobel Prize winner Joseph Stiglitz – to advise him. Dogma, for the time being at least, appears secondary to electability.
Besides, concerned capitalists should take solace in knowing that, however hardline or anti-business McDonnell and Corbyn's policies may or may not be, there's a long, long way to go before they take them to the electorate at the end of this parliament. Assuming the party hasn’t purged them by then, of course.