An idea whose time has come

The idea of a tax on every financial transaction made by a bank or City dealer is not new. Indeed it is often called a Tobin tax, after the Nobel economist James Tobin who came up with the idea in 1978 to penalise short-term speculators but not long-term investors. It is an idea whose time has come.

France and Germany are pushing for such a financial transaction tax (FTT) to be introduced Europe-wide . It would raise a tiny levy – of perhaps just 5 pence on every £100 traded in any shares, bonds, currency or derivatives deal which did not directly involve a member of the public. Bill Gates yesterday joined 1,000 top economists across the globe backing the plan.

Britain is opposing the idea for fear it will damage the City of London. Critics of the scheme say it is naïve, impossible to implement and failed in Sweden when it was tried there. Those are just excuses. Britain has had one of the biggest routine transaction taxes in the world the stamp duty which has been levied on every share transaction since 1694. A Tobin tax would be no harder to collect than VAT. And the particular flaws of the Swedish system would be easy to avoid.

Critics say it would make Britain uncompetitive. But unilateral schemes work in Brazil, South Africa and Korea and could be made to work either across the Eurozone or whole EU. Britain would not have to agree – since Europe could levy the tax on any investor based in continental Europe even for deals executed in London. But it would obviously be better if Britain were to back the scheme and ensure that it was implemented fairly.

Some in Europe want the money raised by the FTT to go into general EU coffers. But it is important for part of the cash levied in the UK to go to ease the British public deficit. And it is important for this to be Robin Hood tax, with money from the rich going to help immunise poor children in the developing world.

This would be popular tax. It would curb speculative high frequency trading, where computers algorithms now drive more than 70 per cent of UK sales shares in deals divorced from real-world fundamentals which rely instead on ultra-thin margins to turn profits. An FTT would throw grit in that mad conveyor belt. And the tax would be paid by the unpopular financial institutions responsible for the current world crisis. Polls show two-thirds of Britons back the idea. It is time George Osborne did the same.

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