How would the financial transaction tax affect London/UK?

Road_Hog

IronWolf wrote: »

Surely there are no British politicians stupid enough to let this one get through

HAMISH_MCTAVISH

It's a great idea.

But only IF you could implement it globally. Which of course you can't.

So it's a stupid idea.

ILW

I think all the smellies camped outside St Pauls think it's a great idea.
Cos it's all the bankers fault innit.

sheffield_lad

Each country keeps the tax generated by their own investment banks & financial institutions & is adopted world wide sounds good to me.

Otherwise NO CHANCE, why give Europe tax raised here.

chewmylegoff

If we're going to tax the banks more we should at least keep the money ourselves. A transaction tax will just lead to everything being booked somewhere which doesnt levy a transaction tax. The costs of any onshore trx would be passed on to the customer. So basically retail customers all get taxed more by the govt and more banking profits are shifted to subsidiaries in other jurisdictions and then repatriated through the tax free dividends (well the bit left after the offshore bonuses have been paid). Govt will try to implement anti avoidance measures which will completely fail.

dealer_wins

Is the "transaction tax" literally on everything, including paying for something with a debit card? Or is it just another tax on those big old nasty banks that help keep the UK from becoming 3rd world central?

Mr_Mumble

The FAQ in Gagahouse's link is a great read, for all the wrong reasons, consider this little contradiction:

Which transactions will be excluded from the proposed tax?

Only transactions related to financial instruments would be covered by the Commission's proposal. This means all transactions in which private households or SMEs were involved would fall out of the scope of the tax. For instance, house mortgages, bank borrowing by SMEs, or contributions to insurance contracts would not be included. Spot currency exchange transactions and the raising of capital by enterprises or public bodies, including e.g. public development banks through the issuance of bonds and shares on the primary market, would not be taxed either.

and then in a separate q&a near the bottom:

How will the proposal mitigate the risk of the tax being passed on to consumers?

The Commission has proposed that the tax should cover only transactions where financial institutions are involved. The aim is to tax the financial sector, not their clients. The tax would aim at covering 85% of the transactions that take place between financial institutions.

However, in case private households and enterprises were to purchase or sell financial products, financial institutions could pass on the tax. For instance, for a purchase of shares to the value of €10 000 the bank could charge €10, which is not excessive

Hmmm!*

As for assurances other private household and SME transactions will not be taxed...

HAMISH_MCTAVISH wrote: »

It's a great idea. .

It really isn't under any circumstance since its the stealthiest of taxes that would especially damage private sector pensions, it'd make Gordon Brown look like an angel.

The tax incidence (i.e. who ultimately pays) of a financial transaction tax would be the end consumer most of the time. Private pensions are the obvious example but there are so many others.

If Unilever have to set up dozens of currency hedges** to keep the price of Indonesian palm oil steady to make sure their products don't have uncertain costs who pays for this ultimately? Unilever must think the cost of putting on these hedges is cheaper than the costs involved in putting up with a volatile and uncertain exchange rate for the product. Perhaps it'll be the pensioner (since pretty much anyone with a private sector pension will have some tiny stake in Unilever) who'll pay with a lower equity value and a dividend that doesn't keep up with inflation. Or, perhaps it'll be the consumer who has to put up with higher prices that fluctuate more, or maybe it'll be the employees who will not get as high a pay rise as Unilever has to cut costs to keep profitability up to help those shareholders.

Tax incidence usually falls on those who don't have an option in the transaction. With regards Unilever products this'll range from soap and detergent - things most people need - to Ben & Jerry's ice cream that people don't. But here's the quandry: who is getting shafted the most if the tax incidence falls on those who don't have the option here? It aint the rich folk eating expensive ice cream!

As with other transactional taxes such as VAT they are ultimately pretty regressive - especially when you don't have exclusions like food, magazines or books which we have in Britain but is an exception rather than the rule. A rich family who spends a few weeks a year in Florida, has a lot of optionality in their consumption and can afford expensive ice cream will not be hit as hard as a family who holidays in Skegness and needs soap and an old car***.

Politicians continually play chess with the taxpayer and win. The taxpayer will take the queen immediately ("tax those dirty bankers who the politicians say are the problem") and ignore the consequences three turns down the road that result in their certain checkmate ("Why do I feel poorer? why are services not getting better? Why are other countries bounding ahead in wealth while we become the new third world and go bankrupt?"). Take a look at the EU FAQ and it stresses that there are no first order, direct taxes on end consumers (outside of those who directly invest in shares and bonds) this is nothing but an irrelevant ploy that is continually debunked by economists, its the reason Osborne finally stood up to these fools last week.

I'm sure I haven't convinced anyone but I do want to play chess with those who disagree with me.

Loads of tangential footnotes that ramble on below, sorry, I just couldn't stop typing!

*Also of note in that first answer: government bonds are not taxed on issuance and nor are buyers on issuance (be they private or institutional) but purchases in the secondary market do get taxed... huh! This is sheer incompetence rather than malice but it's still ridiculously dumb. Even for those who buy a government bond on issuance who intends to keep it until maturity is not going to pay as much because there is an optionality cost involved - selling the bond would mean a lower secondary price - the purchaser is going to factor in the tax when looking at whether it is a good investment - ex-EU purchasers will have the option of buying other countries' bonds without the tax. Though of course no-one would want Norweigan, Swiss or Brazilian debt rather than Greek, Italian or Portugese, oh no. What a master-plan!. In terms of shares, it's a little like stamp duty reserve tax now but SDRT is the reason why more and more transactions are done through ETFs, CFDs where no tax is paid. Of course if you have a private pension outside of a SIPP you're extra screwed as your financial intermediary has to pay the transactional tax.

** The taxes on currency transactions are put on to futures transactions but, as the FAQ states, not spot price transactions. Futures transactions are usually a form of insurance whereas spot price transactions outside of the holiday money transaction is a bet. So, even though the EU do come out and say it, the tax is aimed at those transactions that need to be made rather than those that are voluntary. It is a revenue raising measure, a very stealthy one that doesn't help the public .

***With car insurance there is no choice, of course, unless you wish to ditch the car or break the law and neither of those options enhances your living standards! So, the consumer will be the ones on the end of those transactional taxes, sure, you don't pay a tax directly via the insurance company but it is an insurance company! They have to hedge their risk via financial transactions and they can and will pass on this cost!

Road_Hog

Mr_Mumble wrote: »

Tax incidence usually falls on those who don't have an option in the transaction. With regards Unilever products this'll range from soap and detergent - things most people need - to Ben & Jerry's ice cream that people don't. But here's the quandry: who is getting shafted the most if the tax incidence falls on those who don't have the option here? It aint the rich folk eating expensive ice cream!

Spot on, not much to add to your post, but most people don't realise how much food is VAT rated.

That luxury food that is not a staple diet for many poor and students alike, baked beans, is fully VAT rated, as well as money other things like that.

drc

A follow on from the original question - what percentage of UK tax receipts are produced by the financial services industry (i.e. how dependant is the UK on this sector for tax receipts?).

FTBFun

ILW wrote: »

I think all the smellies camped outside St Pauls think it's a great idea.
Cos it's all the bankers fault innit.

They're obviously changing the world and stuff.

Including the chap who was pouring a can of Kestrel into his travel mug at 9am this morning. And the one who has a big cardboard sign up about 9/11 being an inside job.