Thursday, August 27, 2009

"Bank tax unworkable, says Clegg"

Is this really the headline we want to see as the Liberal Democrat response to Lord Turner's call for taxation to be used to curb the power of the City?

The BBC News story that follows it:

Mr Clegg said there were real questions marks about the "workability" of a UK-only bank tax, given that most banks operated across national borders and in many countries.

"It has been debated for many years and it has a lot of practical problems," he told the BBC.

There are a lot of practical problems with any ambitious policy. That does not sound like a good reason for being so dismissive.

And if a UK-only tax is not workable, doesn't that make this an ideal opportunity to promote the Liberal idea of international co-operation?


Unknown said...

Actually, I have to agree with Nick Clegg, but with bells on. Firstly, a Tobin tax on currency conversions (if that is what Lord Turner is proposing - he seemed extremely vague) does need to be truly international and universal. While idealism is fine (I for example support free migration, a pretty remote prospect at the moment) we do need to have practicable policy responses to the economic crisis, rather than just aspirations. Otherwise the next one will have happened before the aspirations become reality.

Secondly, I disagree with the idea of a tax on financial transactions. As many people have pointed out, taxing transactions will make markets more volatile and less liquid. While volatility and risk are not the same thing (an assumption that tripped up far too many "risk managers"), it seems a bit daft to be creating extra volatility by legislation.

Moreover, the costs of a universal tax will inevitably be passed on to the consumer - as all banks would have to comply no one has the choice to avoid paying). People investing for their pension already have to pay 0.5% stamp duty on buying shares traded in Britain. Instead of creating new taxes we should do what Vince Cable suggests: separate high-street banking from riskier banking (to get rid of the taxpayer guarantee for the more adventurous parts of the financial system).

Turner is also wrong to dismiss Tory suggestions of a competition investigation - thanks to Mr Brown's lamentable decision to let Lloyds TSB rescue HBOS (thus contaminating itself) instead of the state nationalising it we have a very concentrated banking market which needs more competition.

neil craig said...

Not sure that making all the little countries change their laws for our convenience is such a liberal idealm or at least it wasn't till "liberalism" was redefined as bombing hospitals to assist in the genocide of small slavic nations. Or are we going to change our laws to be convenient to Lichtenstein (though arguably they already are of great convenience to Lichtensein).

There is an older liberal tradition of free markets rather than everything being controlled by the state.