Some ideas are marinated for many years before they are put on the policy menu. Maybe this could happen with the Tobin Tax, originally devised by the American Nobel Laureate James Tobin in the early 1970s to rein in short-term speculative trading and throw sand in the wheels of global finance, as he put it.In the 1990s it was embraced by War on Want and others but was seen as marginal or utopian. It has recently received an astonishing boost by a very unlikely figure, Adair Turner, the chairman of the Financial Services Authority, in an interview with Prospect. Turners comments have caused a furore in the City but he is sticking to his guns.
I first came across Tobin myself in the mid 1990s when I heard of a tax that could raise so much money that one wouldnt know what to do with the proceeds. This seemed ideal a tax on the very few that would raise billions for the many.
Tobins original aim was the stability of the international trading system rather than raising revenues. Since then, however, there has been a huge upsurge in the scale of international currency speculation, which is about a trillion dollars every day.
Some object to taxing speculation because it legitimises the trade a tax on sin and is mere tinkering. However, backers of the tax saw how speculation wreaked massive damage on many economies, regardless of the strength of their fundamentals, and how jobs and livelihoods are capriciously destroyed by currency traders making a fast buck.
One former trader says that he decided to sell or buy depending on whether the cranes outside his office were pointing east or west. This seems apocryphal but is still a telling indictment and campaigners have sought to minimise it rather than waiting for the system to be overthrown.
The Tobin Tax has had major support in France, including from President Mitterand, and its enjoyed support from smaller European governments too. It was also very nearly adopted by the European Parliament.
Over the last decade, the rough edges of the proposal have been smoothed and the idea finessed by War on Want and others in the Stamp Out Poverty coalition, which campaigns for additional sources of finance to bridge the massive funding gap needed to bring the worlds poorest people out of poverty.
They have published research by the economist Rodney Schmidt that advocates a currency transaction tax of 0.005%, which would raise about £20bn a year.
The issue has been kept on the parliamentary agenda for a decade with occasional meetings and motions. Labour MP Dave Anderson tabled a Commons motion on the issue in April which briefly outlines the case for the tax.
It reads: That this House notes that the global financial crisis has made meeting the Millennium Development Goals by 2015 significantly more difficult and requires a substantial new source of revenue; further notes that recent moves to end the secrecy of tax havens signals a willingness to redraw rules in the financial world; recognises that the foreign exchange market has continued to grow and that market volume now exceeds $1,000 trillion a year; believes that it is an anomaly that currency transactions are exempt from taxation since all other parts of the financial market have attracted transaction duties in recent years; endorses the proposal for a currency transaction levy at a rate of 0.005 per cent, which is high enough to yield potential revenue of about $33 billion a year but too small to alter market decisions; further believes that this measure affords little scope for avoidance since this market is fully electronic, and collection automatic; recognises that a precedent for a currency transaction levy has been set by the UNITAID international drug purchase facility, which is mainly funded by aviation levies that are collected nationally and pooled internationally; and strongly recommends that the Government supports consideration of a currency transaction levy at the forthcoming G8 Summit in Italy where large-scale financing instruments will be discussed under the auspices of the International Health Partnership.
This has attracted 45 supporters from the three major parties and two smaller ones.
The usual argument against Tobin is that it would require international agreement to make it work and that this wont be forthcoming. However, Will Hutton has put his weight behind Turners bombshell which he says would reduce the volatility, volumes and general craziness while striking at excess bank profitability and huge bonuses and also be a nice source of income to finance global public good ranging from poverty alleviation to health.
Hutton rightly suggests that such a tax is practicable because: Settlement systems are ever more centralised, making evasion harder. Politically, western governments have given 10 trillion dollars worth of support to their banking systems. They can, like Sarkozy, just tell their banks to comply with the tax or else lose government guarantees and access to liquidity. None of the worlds top 20 banks would dare refuse.
Avinash Persaud (chairman of Intelligent Capital, chairman of the Warwick Commission and a former banker) recently wrote in the Financial Times that financial transaction taxes are not only commonplace, but have become easier to enforce and the real question today is not their feasibility but their desirability.
He reminds us that most foreign exchange transactions are now settled in one place, the London-based CLS Bank, and concludes, if transaction taxes were levied in these centralised settlement systems, they would be very expensive to avoid.
He adds: It is hard to argue that anything is not feasible today after governments have engaged in whole-scale bank nationalisation and credit guarantees, pushed budget deficits into double figures, become the buyer of last resort of assets they would not normally touch with a barge pole and threatened to legislate against private sector pay. Where there is a will there is a way.
Will Hutton suggests political benefits too: But just imagine how electrifying it would be if Gordon Brown made a speech along Turners lines, proposed a royal commission to assess what kind of financial services industry Britain now needs and committed himself to trying to find international consensus on a Tobin tax. Intellectually, the case is unanswerable. Politically, it would define the last months of his prime ministership.
A Tobin-type tax is not a panacea by any means but could increase the stability of global markets and raise revenues for reducing poverty and tackling environmental damage. Global markets are here to stay but should help provide revenues for global goods.