Things are heating up before next month’s general election in the UK, and one of the hottest issues revolves around who is responsible for stabilizing the economy and paying for the financial crisis. Under a plan presented by the Labour Party, the financial sector would pay its fair share—but is the “Robin Hood tax” the solution, and who would really be affected?
Robin Hood Tax
The proposed tax would target traders in London and extend the current 0.5 percent stamp duty to cover other forms of trading and investments, including derivatives. According to party leader Jeremy Corbyn, the tax could raise more than £5 billion a year.
Last year, the existing stamp tax on buying and selling stocks brought in more than £3 billion. Taxing derivatives takes away some of the risk of speculative computer-driven high frequency trading. The overall goal of the tax is to remove the most destabilizing forms of speculative high-frequency trading and prevent another financial crisis.
The tax is part of the party’s plan to crack down on tax avoidance by the super rich and use that money to fund public services. It would also force people who earning more than £1 million a year publicly file their tax returns. Large companies would also have to put their tax records in the public domain at Companies House.
According to Shadow Chancellor John McDonnell, who was preciously against new financial transactions taxes, the new moves will “make the financial sector pay its fair share after it received huge public bailouts in the crash. All we’re asking for is fairness in our tax system.
By making those who trade in financial derivatives pay a small fraction of their profits, we can help properly fund our public services. Ordinary people are still being made to pay by the Tories for a crisis they didn’t cause through the worst spending cuts for generations.”
The tax isn’t about punishing bankers, Labour leaders say, but rather about closing loopholes that led to economic issues in the past.
Blame for 2008 Crash
In 2015, Corbyn admitted that the Labour Party was responsible for the 2008 financial crash because it didn’t regulate the industry enough. The new taxes would help prevent a similar crash from occurring again by slowing down the speculative and destabilizing activity that led to the 2008 crash while also putting more money in the Treasury.
“We bailed out the city 10 years ago when the crash came…Since then £100 billion has been given out in bonuses in the city,” McDonnell said. “So we are asking for a small contribution…to fund our public services.”
The new regulations would provide incentive for financial institutions to monitor their trading and avoid picking up habits that led to the major crash in 2008.
Opposition to the Tax
As soon as Labour released the proposed plan, other parties came out against it. Financial Secretary to the Treasury Jane Ellison of the Conservative Party said the plan was “a shambles” and pointed out that the mayor of London was against it because of the danger it poses to economic growth and jobs within the city.
If traders and companies have to pay what they see as exorbitant taxes, they could take their business elsewhere. Other experts predict that the proposed tax would increase the cost of capital for businesses and make it difficult for them to grow and expand.
These fears are on top of the existing fears that Brexit could hurt the London economy. Other politicians, including members of the Liberal Democrats, say the Labour solution is unworkable and won’t stand up against the Conservative Party.
Labour has an uphill battle to win big on June 8, but the idea of a Robin Hood-esque tax could make waves through London and the UK and affect how people view the economy and stability of the area.