Let\’s have a financial transfer tax on sums that move through CHAPS.
This tax has everything going for it.
Note: I advise the TUC on tax matters
The proposal is here:
A transaction tax of 0.05 per cent would have raised £37 billion in 2008, but would only impose a very modest charge on each individual transfer. A tax on the average CHAPS transfer of £2 million pounds would cost £1,000.
The TUC believes that after adjusting for changes in the behaviour of financial institutions, a transaction tax of 0.05 per cent could raise around £30 billion a year.
I\’m finding the cognitive dissonance difficult to deal with here.
They really do seem to be assuming that you can simply whistle up 2.5-3.0% of GDP in taxation without it having any effect on other things.
As Willem Buiter points out, the City (rather than all financial services) provides about 4% of UK GDP.
Do they really think you can tax 75% of the entire value added of a sector and not change things?
Purely as speculation on my part, wouldn\’t this kill overnight lending stone dead?
Err, yes, I think it would actually. I assume that interbank lending is done using CHAPs as the payment method (anyone want to correct me?). LIBOR is about 0.5% at present. That\’s an annual rate of course.
Now I cannot remember how many banking days there are in a year….something like 260? Let\’s use 300 just for ease of calculation. That means that for lending money from one bank to another overnight you\’re going to get 0.0016% of that sum lent.
And you\’re going to get hit with a tax of 0.05% of the sum lent.
Congratulations, you\’ve just killed the entire interbank lending market. Stone fucking dead.
In fact, you\’ve just killed it stone dead until interest rates rise over 15%….which is the level at which the interest earned will be greater than the tax paid.
This does depend on the banks using CHAPS as their method of payment for interbank lending: something I\’m trying to find out.