Life & Culture

It's time to tax those bankers


The 'Occupy Wall Street' and 'Occupy London' movements are too easily dismissed as the actions of a bunch of middle-class cranks without a real cause. But like the 'Cottage Cheese' protests in Israel and the spontaneous youth protests in Barcelona, they are civil disobedience with real meaning.

The global crisis has placed sharp income disparities in the spotlight. Nowhere are these inequalities more clear than in the business communities.

The City of London, with its investment banks and brokers, has been a huge wealth creator for Britain. But it is sobering to think that 2009/10, in the immediate aftermath of the banking bailouts of 2008, was a hugely profitable period for investment banks when record bonuses were paid.

In 2010 alone it is estimated that 10,000 people working out of the City of London earned more than £1 million. This at a time when ordinary households were suffering their biggest squeeze on real incomes since the 1920s. Equally disturbing was the revelation by research group Income Data Services that the total remuneration of the FTSE100 directors climbed 49 per cent last year.

It is not anti-capitalist to regard such rapacious behaviour as unjust. The Chief Rabbi Lord Sachs deplored "growing economic inequality" in a recent interview for the Algemeiner website. And the Archbishop of Canterbury Rowan Williams has belatedly attached himself to the idea of a tax on financial transactions in the City. More encouraging are the changing attitudes among some of the wealth creators themselves, who finally seem to recognise the need to step into the real world.

Bill Gates, founder of Microsoft and one of the world's richest men, has promised to give away his fortune. This, plus his brilliant work on eradicating diseases in the developing world is well-documented. And he now wants to add momentum to the call for the very same transactions tax advocated by the Archbishop with the proceeds directed at the developing world.

A more surprising convert to the idea that capitalism needs to change is the chief executive of Barclays, Bob Diamond. A year or so ago, in testimony before the Treasury Select Committee of the Commons, Britain's highest paid banker suggested that the banks had apologised enough for their mistakes. His tune has changed. In the BBC Today inaugural business lecture Diamond argued that banks had to become "good corporate citizens" and supported stronger regulation. But he is still keeping his own counsel on executive pay.

Another straw in the wind came at the FT Goldman Sachs Business Book of the Year awards. Goldman, which sets the standard for the financial world, shows no sign of weakening its commitment to high pay.

The 'Occupy' protests have led to a groundswell of support for a so-called 'Tobin' tax. The idea of a tax on financial transactions was first advocated by the late Nobel prize-winning economist James Tobin in the 1970s. His idea was a micro-tax on financial transactions of between 0.01 and 1 per cent with the cash raised used to support development. Transactions taxes are nothing new. It is a longstanding complaint of the London Stock Exchange (LSE) that share deals conducted on its platform are subject to stamp duty. The LSE has been unsuccessful in lifting this particular transactions tax as it raises £3 billion to £5 billion a year for the Treasury.

Recently the broader proposal for a transactions charge has gathered momentum. It is supported by President Sarkozy of France and Chancellor Merkel of Germany.

The main opponents are Britain and the United States. But even the UK concedes that it would support such a tax if there was global agreement.

As the 'Occupy' protests continue the more likely it is that the financial transactions tax will remain near the top of the world agenda. As a result of the post crisis reforms to the financial system such a levy would be much easier to administer as all deals must be conducted through recognised clearing houses and exchanges rather than over-the-counter - buyer to seller. This means deals are easier to monitor.

As Professor Jeffrey Sachs has noted, such a tax would "impose proper taxes on a sector that is chronically under-taxed and would raise funds to reduce deficits and fight poverty."

It might also lead to a reduction in speculative trading. Bring it on.

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