UK's Conservatives Criticise Clare Short's Taste In Tax

by Amanda Banks, Tax-news.com, London

30 April 2001

Clare Short, the UK's Secretary of State for International Development, was criticised by the Conservatives last week for touting the controversial 'Tobin' tax as a solution to the crisis of destabilising markets.

Over 130 MPs signed a House of Commons' motion requesting that the Tobin tax be implemented to 'help to dampen down the scale and scope of speculation and raise substantial revenues, raising over £160 billion each year for good causes such as development and environmental protection.'

In a statement to the International Development Committee, Ms Short claimed: 'We think it is a good idea for countries to look for taxing mechanisms ... so that there is a restriction on hot money that can cause a destabilising effect. On the Tobin tax, the idea that there should be a very tiny charge on hot money moving around the world which would go into a big global development pool is a very attractive idea.'

The Tobin tax, named after US economist James Tobin in the 1970s, is a global tax introduced on short-term, speculative financial transactions in foreign exchange markets with the aim of discouraging operators from performing short-term cross-border transactions which, in theory, should reduce the number of speculative transactions and tame capital market instability. Tobin concluded that the revenue generated from the tax should be invested into global priorities such as basic development needs.

According to the House of Commons' motion, international currency speculation is currently valued at over
£1 trillion a day. The motion states that 'the vast majority of this is unrelated to trade in real goods and services [and] ... such enormous speculative flows substantially undermine the powers of national governments and regional blocs.' Furthermore, the tax could raise as much as $250 billion each year for development and environmental potection. The House also noted that the Tobin tax was backed by the Canadian and Belgian parliaments and the Finnish government.

But the tax won't be agreed to just yet as the Prime Minister, Tony Blair, has said that he is aware of the negative aspects of the tax and it may be some time before a decision is reached. Gary Streeter, the shadow International Development Secretary, argued that Ms Short's comments were not consistent with the opinions of the rest of the Cabinet, telling the Independent newspaper: '[She] is advocating a policy that her own colleagues predict could threaten thousands of British jobs and jeopardise London's place as the world's financial centre.'

Perhaps Mr Blair is familiar with the European Banking Federation's (EBF) comments last month when it declared that imposing the Tobin tax on foreign exchange transactions was not the answer to tackling volatility in the international financial markets. The EBF claimed that the tax was just not feasible in practice, saying that it would have to be introduced simultaneously by all countries in order to avoid diversion of financial activity. But the chances of reaching the necessary worldwide consensus for such a concerted move are scarce and, furthermore, the Bank claimed that the tax would 'introduce new complexities into the workings of international financial markets, rendering any control of the system practically imposible and hence difficult to enforce.'

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