Everything you need to know
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 Transaction 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 £250 billion a year globally. FTTs are well-tested, cheap to implement and hard to avoid.
In fact, there are already lots of different transaction taxes implemented by many countries, including in the UK. They all work on the same principle: taxing every transaction a very small amount. We think there should be a lot more of them, particularly in areas not yet taxed, like currency transactions and derivatives.
Importantly, transaction taxes are also good in that they would reduce the number of the most risky transactions, the gambling which helped to trigger the financial crisis.
WHY DO WE NEED ROBIN?
You might have noticed that the economic crisis and the recession have left a massive hole in the UK’s public finances. Frontline services and jobs are at risk. 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?
- 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:
- £110,000 saves 350 libraries at risk of closure
- £680m reinstates Educational Maintenance Allowances
- £2 billion avoids housing benefit cuts
- £4 billion halves child poverty
- £5 billion insulates every home
Around the world:
- £4 billion puts every child on earth in primary school
- £5 billion pays for free health care for 200,000 people
- £7 billion means Haiti can fully adapt to the threat of flooding
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 the most profitable industry on earth, 26 times more profitable than the average business.
Because it is under taxed - so it can afford to do so. A tiny tax on the financial sector could generate £20 billion 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 so far, the cost of the financial crisis to the UK economy, as calculated by the International Monetary Fund, is that UK government debt will be 40% higher. That 40% equates to £737 million pounds, or £28,000 pounds for every taxpayer in the country. Having to pay back that debt means cuts in vital services on which millions of people around the country rely.
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 tax payer each year. But the banks have already started to report record profits and pay themselves enormous bonuses once again. The 2010 bonus pot for the UK is 6 billion pounds, enough to pay the salaries of 340,000 nurses in the UK, or provide free healthcare for 250 million people in developing countries.
Because the IMF and many other financial commentators believe that the financial 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. 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.
WHAT HAS THE UK GOVERNMENT DONE SO FAR?
Chancellor George Osborne introduced a Bank Levy in January 2011 but it misses the mark as it will only raise £2.5 billion annually, and doesn't ring fence a penny to help the people hit hardest by the financial crisis. Reductions in corporation tax mean the actual revenue collected is even lower.
This is nowhere near enough. So we're calling on him to raise £20 billion by taxing the UK financial sector- a figure based on research as to how much it can afford to pay.
One of the reasons the government has not done more is the immense power of the City of London in lobbying and influencing politicians. That is why huge public pressure is needed to convince the government it is more costly to ignore the people than to ignore the banks.
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, casino-style trading which employs a small number of highly paid bankers in London, not the tens of thousands employed in high street financial services.
Studies show that an FTT on currency would at most shrink the market by 14%. This might sound significant but the number of transactions has been expanding so quickly in recent years that it would actually only take the market back to the levels of 2007.
CAN THE UK FINANCIAL SECTOR AFFORD TO PAY £20 BILLION EXTRA?
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.
The sector’s taxable income could reach £90 billion in 2011. That's 25 per cent higher than in 2007–08. Add in companies like hedge funds registered in the Cayman Islands but trading in the UK and the true total gets much, much higher.
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 sectors 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.
The enormous currency markets – where speculators have been free to reap huge profits at the expense of wider society – would be a good place for unilateral action to start. It's a quick win that would immediately help generate income and prevent cuts.
WON’T COMPANIES JUST AVOID THE TAX OR MOVE THEIR BUSINESSES OFFSHORE?
This is a common and misguided criticism, and one that's easy to answer.
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 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.
In 2010 the UK government implemented a one off tax on the bonuses of bankers but despite warnings from the City this did not lead to any major exodus. In fact recruitment is up.
WON’T BANKS JUST PASS THE COSTS ON TO US?
No, because Financial Transaction Taxes (FTTs) are specifically aimed at casino-style 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 casino 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 TRANSACTION 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, 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.