Earlier today I was reading Rod Liddle’s Spectator article on the depressingly nutty views he encountered of the protesters outside St Pauls Cathedral which some members of the Church of England seem so in thrall to. I won’t go into details – suffice to say he summed them up by writing “I wonder who their dealers were and maybe if I could get a phone number“.
London’s City, the financial centre of Europe and in some key markets, the world, is, as I wrote a few years ago in 2008, under constant assault from EU Regulations, Financial quangos, jealous American regulators and untramelled foreign competition. As I opined back then;
Anyone who thinks legislation is the answer to the City’s woes must be ill-versed in daily life there. Forget for a moment the public image of the high-earning wide-boy traders and the hedge fund managers. Today’s financial sector is easily the most over-regulated, conservative industry in the whole country. Too much of the entrepreneurship has gone out of the sector.
No wonder then that when I bump into old friends occasionally who I worked with in the City quite a few years ago, I notice they appear to have aged prematurely and seem – to be horribly blunt – emotionally repressed. The human animal and its entrepreneurial spirit wants to be free to experiment and to work in creative bursts. But constantly having to worry about complying day-in, day-out with regulations whilst working long hours can take you far the other way.
So now we have news that someone sensible and highly accomplished, Bill Gates, adds his weight to call for Robin Hood tax. Gates said;
“It is very plausible that certain kinds of FTTs (Financial Tax on Transactions aka Robin Hood Tax) could work. I am lending some credibility to that. This money could be well spent and make a difference. An FTT is more possible now than it was a year ago, but it won’t be at rates that magically raise gigantic sums of money”
If you read that slowly, it’s not exactly a ringing endorsement. Personally, I can think of lots of things that are plausible but are on balance, far from a good idea. And whilst one must respect the work that the Gates Foundation has done, don’t think for a moment that governments would be as good at distributing funds as they have. Optimal tax collection – usually a mirage in itself when measured by costs of collection, cost of compliance and lost revenue by evasion or avoidance – rarely matches a hypothecated optimal reallocation.
And then there’s the much bigger issue, those within the EU pushing hard for the Financial Transaction Tax don’t seem to have anything like as much as a financial sector, that serves as a job creation scheme and an income and corporate tax revenue generator as the UK. So who has most to lose here?
Obviously it’s us. So all credit to the Adam Smith Institute for producing a paper entitled “Hanging London out to dry: The impact of an EU Financial Transaction Tax“. I can’t see this tax being anything other than a negative on British Financial Services. Why on earth would you want to reduce liquidity by increasing trading costs which are then passed onto your dwindling pool of consumers?
There are lots of valid criticisms of our financial service sector to be made – the unwarranted high margins of active fund and pension managers, the extent of the bailouts, the lack of retail banking competition – to name but a few.
But a Robin Hood Tax is definitely not the solution. Do we really want to inadvertently send vast quantities of city front and middle offices (much of the back office went some time ago) abroad to Hong Kong, Singapore or Zurich?
The shocker is that while the UK has a lower interest rate than Euroland and can borrow at lower rates than every other major European country other than Germany, we are only just behind most of the PIIGS (Portugal, Italy, Ireland Greece and Spain) when measured by the total cost to GDP of interest payments on borrowing at 3.1% while Spain is some way down at 2.2%.
