I'm just back from Scottish Liberal Democrat conference. A highly enjoyable weekend (except Friday night's comedy debating difficulties), with one especially stimulating meeting organised by Oxfam on the subject of the "Robin Hood Tax". The Robin Hood Tax is essentially a rebranding of the Tobin tax, and is a proposed tax on financial transactions that Oxfam are supporting as a way of raising about $200-700 billion to tackle many difficult issues. They propose that 50% of the money would be spent in the country where the tax is raised, 25% would be spent on helping poor countries to adapt to climate change, and 25% to tackle international poverty in general.
I went into the meeting broadly in favour of the tax. We need to raise some money to tackle the very serious problems we face. The bankers seem to have a whole bunch of money to spare. Why not skim a little money off every transaction and use it for the common good? I was however fairly concerned about Oxfam's marketing strategy "Join us in the world's biggest bank job" or words to that effect. It doesn't strike me as a sober, rational attempt to build consensus on how best to tackle the world's problems, rather an opportunistic and brazenly populist attempt to capitalise on the bankers current unpopularity and just stick the boot in while they're vulnerable.
I was given further cause for concern when a former banker in the audience stood up and railed against the idea, stating that while the tax appears tiny at 0.05%, this is the level that financial trading operates at these days. There is so much competition that dealing is happening to squeeze the smallest of profits out of the market. He said that this tax would push bankers towards more risky trades with higher margins and we don't want bankers making risky trades. The figures that Oxfam and others hope to raise represent approximately half of the profits of the world's banks. It is not a tiny tax. It is a massive tax.
So I piped up at the end of the discussion to say that surely we have to ensure that this tax helps curtail the risky banking behaviour, we shouldn't be jumping on Richard Curtis' populist kneejerk 0.05% tax if we're not sure it will achieve that. But I also said such a tax would be an excellent opportunity for global co-operative taxation, thinking that a global tax would eliminate the anti-taxation arguments of international competitiveness, brain-drain etc.
I made a point of attracting the former city worker's attention at the end of the event and he said a whole bunch of stuff about margins and competition that I was just about following. I then asked him where the money actually comes from. Are they actually creating wealth or just taking it from somewhere else? He explained that banks raised this money and used it to support individuals and businesses and shareholder value etc. I then asked something along the lines of "But if one bank wasn't making all this money, surely all the other banks would be doing exactly the same. What difference does trading really make?" He didn't have an answer.
So does all this money just slosh around the financial markets interminably, being rebranded as it goes into triple-A rated derivatives and the like for no great purpose? At the moment that's the impression I'm getting. I have a picture in my mind of hundreds of people on trading floors just doing some properly sissy-boy flappy fighting with everyone around them. There may be the occasional minor scratch or broken nail inflicted, but ultimately the whole endeavour is utterly pointless. And they just flap away every day until the day when a door opens in a corner of the room and releases a menagerie of wild, carnivorous animals and the whole flapping thing goes to shit and men are holding other men between themselves and hungry velociraptors, lions, bears and the like. Turns out that it all wasn't real though. Some benevolent Demi-God known as Darling just pushed the reset button, they all had brief, "I'm alive! Everything from now on is going to have meaning and be useful!" moments and then presumably figured that flappy-fighting was more fun and got right back on board.
So what then could the "Robin Hood tax" achieve? It should reduce trading, reduce the number of people employed in the business and reduce the profits to be made from the business. If it reduces the number of companies engaging in trading then there will be fewer people who'd want to poach your best staff. So where would be the point in giving them enormous bonuses if there are few other places for them to go? Bonuses should surely fall, the gross inequalities in our nation should diminish and everything would get better (I'm reading "The Spirit Level" at the moment).
I don't know enough about risky trading to know how this tax will affect it. The former banker I was talking too explained that banking often comes up with new products as soon as people realise how to trade in the last one and margins diminish. I suppose it might be possible that this tax would accelerate the creation of new products with higher margins and increase the possibility of disastrous cock-ups but then I am writing this paragraph purely with my logical brain and not through any actual knowledge of the subject. Maybe some bankers could enlighten me?
So to sum up, I think it is a great idea, but the difference between 0.05% and 0.01% should probably be seen in the same way as ordinary citizens would consider the difference between 10 and 50% income tax. We have to be careful and ensure we get that number right and properly study the potential ramifications. I feel it's imperative that we split the high street banks from their speculative arms before we conduct this experiment. Either that or ease the tax in gently over time.
Hopefully I'll have time to read into this properly and get back to you all.
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