Many of us thought it a bit weird that Gordon Brown suggested bringing back the Tobin Tax last weekend during the G20 summit. The idea is to tax every financial transaction, just a little bit, one or two cents on each … this way you can build up a fund for any future financial shocks.
The reason it's a bit weird is that any action by governments need to be co-ordinated across all G20 nations – unilateral activities will just cause banks to relocate elsewhere – and Gordon had zero support for this idea from his usually supportive key allies.
As with the bank bonuses debate, the issue of unilateral versus collective responsibility is a big concern and is why the UK and USA have been acting in close harmony, like Siamese twins, during this crisis to make sure they’re co-ordinated in all announcements.
So it was very strange that Brown would suggest the Tobin Tax when Tim Geithner came out five minutes later, saying that it was not something the USA would consider.
But what was even weirder, as pointed out by Private Eye this week, is that the Government and Gordon Brown have consistently rejected the idea of a Tobin Tax for the past decade.
For example, in May 2002 when Gordon Brown was Chancellor, he made this statement to the Parliamentary Committee for International Development:
“The problem is that each of the other proposals, like the Tobin tax … has very substantial drawbacks and they have failed to command the international support that is necessary for us to raise the level of finance over a short period of time so that we can achieve the Millennium Development Goals.”
Or take this extract from the Guardian in July 2002:
“Chancellor Gordon Brown cold-shouldered anti-globalisation protesters last night as he rejected calls to penalise currency speculators to raise cash for developing countries. Appearing before the House of Lords economic affairs committee, Mr Brown said this so-called Tobin tax on foreign-exchange transactions had ‘big problems attached to it’. Increasing the flow of aid to developing countries ‘came down to whether there is political will on the part of governments to contribute more to international aid’, not to levying new taxes.
“The Chancellor's chief economic adviser, Ed Balls, added that the Treasury was ‘very unpersuaded’ that a Tobin tax would help to limit the kind of damaging currency speculation that fuels financial crises. ’It's not at all clear the Tobin tax is stabilising; in fact, it could well be destabilising,’ he said. ‘Well-designed, short-term capital controls could actually be more effective.’”
The rich vein of anti-Tobin views continues through the ensuing years as, just last December, Gordon Brown was asked in Prime Minister’s Questions whether he would support such a tax:
”There are many proposals to deal with the reform of international financial institutions to make them more able to deal with the problems that the world faces, not just the financial stability problems, but climate change. One such proposal is the Tobin tax, which has been found by many people who have looked at it not to be implementable.”
Even in August, when Lord Turner of the FSA mentioned the idea, it was pooh-poohed by the Chancellor.
Nevertheless, this was the same dialogue by Lord Turner where he used the phrase “socially useless”. Ever since, we’ve all been wondering what role for the future for banks in society, and the idea of bringing back the Tobin Tax on Financial Transactions has obviously seeped into Brown’s armoury.
So maybe Lord Turner has convinced him to make a u-turn on Britain's anti-Tobin Tax feelings.
Now, there’s no reason why a politician shouldn’t do a u-turn. It doesn’t look good but, bear in mind that back in 2002-2003, Gordon Brown also refused to believe there was a credit bubble burgeoning in Britain.
This is the famous discussion between Vince Cable and Gordon Brown, recorded by Hansard, on 13th November 2003:
Vince Cable: “On the housing market, is not the brutal truth that with investment, exports and manufacturing output stagnating or falling, the growth of the British economy is sustained by consumer spending pinned against record levels of personal debt, which is secured, if at all, against house prices that the Bank of England describes as well above equilibrium level?
“If the Bank of England is correct in its expectations of a market correction and rising interest rates, what action will the Chancellor take on the problem of consumer debt, which is rapidly rising, with 8 million annual visits from the bailiff?”
Gordon Brown: “The honourable gentleman has been writing articles in the newspapers, as reflected in his contribution, that spread alarm, without substance, about the state of the British economy.
“As the Bank of England said yesterday, consumer spending is returning to trend. The Governor said: 'there is no indication that the scale of debt problems have… risen markedly in the last five years.' He also said that the fraction of household income used up in debt service is lower than it was then.
“I suggest that the honourable gentleman look at the overall picture of the British economy.”
So times have changed and obviously Gordon Brown is not a soothsayer or Nostradamus or Warren Buffett … and so he might be right in performing a u-turn on this tax on transactions.
The only mistake he made was not running this past the Americans (and Canadians, Russians and IMF) beforehand as they all rejected it out-of-hand, as he probably knew they would.
If you ask me it was just a cunning plan, as Blackadder would say (see end), to get more support for Tony Blair in the new EU roles of European President.
After all, the Tobin Tax is specifically supported and promoted by the French and Germans. Showing support of their policies may well be a political play that Gordon thought a good one.
Unfortunately, he’s not quite Blackadder either.
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