Frequently Asked Questions

 

Here we answer any Frequently Asked Questions we're often asked about the Robin Hood Tax and the impact it could have.

WHAT IS A ROBIN HOOD TAX?

A Robin Hood Tax is a tiny tax on the financial sector that could generate billions of pounds annually to fight poverty and climate change at home and abroad. Small change for the banks - big change for those hit hardest by the financial crisis. 

Also known as a Financial Transactions Tax (FTT), a Robin Hood Tax is a tiny tax of about 0.05% on transactions like stocks, bonds, foreign currency and derivatives, which could raise up to £250 billion a year globally. FTTs are well-tested, cheap to implement and hard to avoid.

In fact, there are already lots of different Robin Hood taxes implemented by many countries, including in the UK. We think there should be a lot more of them, particularly in areas not yet taxed, like transactions of bonds and derivatives.

Importantly, transaction taxes are also good in that they would reduce the number of the most risky trades, the gambling which helped to trigger the 2008 financial crisis.

WHY DO WE NEED ROBIN?

The financial crisis and the recession that followed left a massive hole in the UK’s public finances. Frontline services and jobs have been slashed. Many other developed and developing countries face a similar struggle.

The financial sector is responsible for a big part of the mess we're in. So our merry band of hundreds of thousands of Robin Hood supporters believe that banks, hedge funds and the rest of the sector should pay their fair share to clear up the mess they helped create.

HOW WOULD THE MONEY RAISED BE SPENT?

Here, at the Robin Hood Tax campaign, we believe the extra money raised should be spent in the following way:

  • 50% to fight poverty in the UK
  • 25% to fight poverty in developing countries
  • 25% to fight climate change at home and abroad

WHAT COULD THE MONEY PAY FOR?

The financial crisis has driven millions of people into poverty and put many more at risk as the world's poorest countries scramble to fill huge budget holes with dwindling help from richer nations. Poor people in the UK are also being hit hardest by cuts. Revenue from a Robin Hood Tax could go a long way to helping make the world a fairer place.

In the UK:

  • £120m pays for hospital beds to end the winter bed crisis in our hospitals
  • £180m reverses all the public library closures since the cuts began
  • £350m builds a solar farm to power 100,000 homes
  • £620m could plug this year's adult social care funding gap
  • £870m could plug last year's NHS deficit
  • £2.6bn pays Carer's Allowance to all 800,000 people looking after their loved ones
  • £3bn reverses the current round of education spending cuts
  • £4.6bn builds half the new homes needed every year - and makes sure they are affordable

Around the world:    

  • £380m builds flood defences in Bangladesh against rising sea levels, protecting a quarter of a million people's lives
  • £1.4bn pays for life-saving treatment for all people living with HIV who are currently missing out
  • £3.3bn sends 1 million children to primary school for a year who currently miss out

WHY TAX THE FINANCIAL SECTOR?

Because it's responsible for a big part of the mess we're in.

Because it has an obligation to all of us to help clear it up.

Because it is under taxed - so it can afford to do so.

A tiny tax on the financial sector could generate over billions annually in the UK alone. That's enough to protect schools and hospitals. Enough to stop massive cuts across the public sector. Enough to transform lives around the world – and to deal with the new climate challenges our world is facing.

Because according to the Bank of England, the fact that the government will not let the big banks go bust means that they effectively get a subsidy of £100 billion pounds from the UK taxpayer each year. But the banks have already started to report record profits and pay themselves enormous bonuses once again. Since the financial crisis, bankers have been paid out over £100bn in bonuses.

Because the IMF and many other financial commentators believe that the banking sector is under taxed, and has grown to become dangerously large and destabilising for the global economy, as we saw when the crisis hit in 2008. Former FSA Chairman Lord Turner has described a portion of the financial sector as ‘socially useless’.

Because it's time for the financial sector to make a greater contribution to the society it serves.

DOESN’T THE FINANCIAL SECTOR MAKE AN IMPORTANT CONTRIBUTION TO OUR ECONOMY?

Absolutely, it accounts for around 8% of UK GDP.

But this tax will have minimal impact on the majority of the financial sector. Certainly it will not affect retail banking, which includes savings and mortgages. It will instead introduce a micro-tax on short-term, high-frequency trading which employs a small number of highly paid bankers in London, not the tens of thousands employed in high street financial services.

CAN THE UK FINANCIAL SECTOR AFFORD TO PAY A ROBIN HOOD TAX?

Yes, research by the Institute for Public Policy Research (IPPR) shows that the sector can afford another £20 billion in tax.

A Robin Hood Tax would not just fall on UK banks like Barclays and Royal Bank of Scotland, it would also fall on foreign banks operating in the City of London such as Goldman Sachs and on hedge funds.

CAN THIS WORK WITHOUT GLOBAL AGREEMENT?

International agreement would be great, but it's not vital.  In Europe, countries are negotiating to reach consensus on introducing an FTT. But in the meantime, individual countries can act alone.

The IMF has clearly stated that FTTs exist in all the major financial centres already, without driving business away. The best example of this is the UK, where we have a stamp duty of 0.5% on all share transactions. The UK’s major competitors do not have this and there certainly is no global agreement, yet it is a successful FTT that raises around £3 billion each year. It is designed so it can’t be avoided and London remains one of the biggest stock markets in the world.

WON’T COMPANIES JUST AVOID THE TAX OR MOVE THEIR BUSINESSES OFFSHORE?

The short answer is no. As the IMF says, financial transaction taxes (FTTs) “do not automatically drive out financial activity to an unacceptable extent”.

FTTs can be designed so that they are very difficult to avoid. The best example of this is in the UK, where we have a stamp duty of 0.5% on all share transactions.  The UK’s major competitors do not have this and there certainly is no global agreement, yet it is a successful FTT that raises around £3 billion pounds each year. It is designed so it can’t be avoided and London remains one of the biggest stock markets in the world.

There are many reasons banks would not leave the UK, not least that they need a big enough government that they know will bail them out if things go wrong. There are not many governments with the ability or willingness to provide this implicit guarantee, certainly not the Cayman Islands or even Switzerland.

Time zones are critical for financial transactions, with London being ideally situated between Asian and US markets. This means that banks and other financial institutions cannot all move to New York as a major financial centre will still be needed in Europe. Germany, the main competitor in the European time zone is already committed to implementing an FTT.

The highly automated and centralised nature of many financial transactions makes an FTT very hard to avoid, and easy to collect. In recent years, FTTs have been introduced very effectively in more than 40 countries around the world.

WON’T BANKS JUST PASS THE COSTS ON TO US?

No, because Financial Transactions Taxes (FTTs) are specifically aimed at high-frequency trading, and the customer-base of hedge funds and investment banks is comprised primarily of high net worth individuals, not ordinary people. Hedge funds, investment banking divisions of large banks, and dedicated investment banks dominate this market, and so taxes on an FTT would fall primarily on these companies and corporations.

As FTTs are targeted at high-frequency banking operations, they can easily be designed in a way that protects the investments of ordinary people and businesses. Like other taxes, specific exemptions and punitive measures can be built in to protect e.g. lending to businesses or exchanging holiday money.

The IMF has studied who will end up paying transaction taxes, and has concluded that they would in all likelihood be ‘highly progressive’. This means they would fall on the richest institutions and individuals in society, in a similar way to capital gains tax. This is in complete contrast to VAT, which falls disproportionately on the poorest people.

CAN FINANCIAL TRANSACTIONS TAXES REDUCE SPECULATION AND RISKY FINANCIAL ACTIVITY?

In recent years there has been an explosion in high frequency trading - transactions that happen every few seconds. There has also been a huge increase in derivatives, making the volume of financial transactions increase to more than 70 times the size of the world economy.  Many serious commentators believe this volume is dangerously large and de-stabilising, and that many of these transactions are, in the words of Lord Turner, former chair of the Financial Services Authority, ‘socially useless’. 

Many of the most speculative, risky and socially useless transactions are based on very small profit margins, meaning that even at a very low rate such as 0.05%, an FTT would shrink the size of the market by reducing the profitability of the most risky transactions. Many economists support the FTT for this reason.

At the Robin Hood Tax campaign we are principally supportive of an FTT because of the money it will raise to help the poor. However, if it also acts to reduce risky gambling and make the world economy safer that can only be a good thing.

WHY SHOULD SOME OF THIS MONEY BE USED FOR FIGHTING POVERTY AND CLIMATE CHANGE IN DEVELOPING COUNTRIES?

Research for Oxfam has shown that the 56 poorest countries are facing a $65 billion dollar hole in their finances because of the financial crisis caused by the banks. This means cuts in education, health and support for farmers. In desperately poor countries, that means people losing their lives. So a tax on the banks should help those hit by the financial crisis in poor countries as well as in the UK.

At the same time rich nations, who did the most to cause climate change, have promised to find $100 billion dollars to help poor countries who are being hit hardest by its consequences. It makes sense for the financial sector to contribute to the critical need for financing to fight climate change, a point recognised by Germany's Chancellor Merkel.

It is for these reasons that we think that half the money raised should be spent helping the poorest in developing countries, and the other half spent in the UK.

WITH FINANCIAL FIRMS THREATENING TO LEAVE BECAUSE OF BREXIT, WON'T THE ROBIN HOOD TAX SCARE THEM AWAY?

In short, no.

Modernising our current Stamp Duty on shares to get rid of loopholes and extend to a few more products would be a modest tax increase entirely affordable by a financial sector rich enough to reward their CEOs every year with multi-million pound pay packets.

Banks relocating because of the FTT doesn’t make sense. Given the UK already has an FTT on shares, if the strain of such a tax was really a deciding factor of the location of their business then finance firms would have relocated to Germany (where no FTT exists) years ago! The reality is that the FTT is just one of a number of costs of doing business and not high enough for a finance company to relocate its operations.

The real question is what would actually lead UK finance firms to relocate? To which the answer is if the outcome of Brexit negotiations does not give these companies sufficient (or sufficiently profitable) opportunity to do business with EU countries.

Finance firms have opportunistically seized on Brexit as an argument to prevent any moves to tax their sector more. Ultimately, what we cannot have is politicians using uncertainty over the Brexit outcome as a reason for delaying a fair, affordable and timely tax increase which is needed to ease the problems faced by many people across the UK as a result of the financial crisis the banks caused.