Radical Transaction Tax Proposed in UK

August 28, 2009 Taxation in EUTaxation in UK  No comments

The idea for a new financial transaction tax in the UK has been floated by the chairman of Britain’s Financial Services Authority.

Lord Adair Turner, chairman of Britain’s Financial Services Authority (FSA), has proposed that the UK implement a tax on financial transactions, so as to detract from the appeal of wide-spread foreign currency speculation by financial institutions. The tax, which is often referred to as the Tobin Tax, would see a levy on capital flows. The rate of levy has not yet been discussed.

In its original form, the Tobin tax was envisioned as a global tax with it being implemented equally everywhere, as opposed to a selective number of nations. It is theorized that the implementation of the Tobin tax would bring stability to international currency exchange and reduce the volatility which could lead to financial crises. Due to the cross boarder nature of the tax, it has been suggested that an international body take care of its management, but as of yet both the European Commission and the United Nations have rejected such a charge.

Lord Adair Turner’s proposition has so far been restricted to the United Kingdom and no mention has been made about attempting to expand the idea internationally. Comments have also concentrated on the internal benefits of the Tobin tax, in regards to bringing stability to the country’s financial system and reducing excess spending. The FSA’s chairman commented on the tax, saying “If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit.”

Those opposed to the introduction of such a tax have claimed that it could see the reputation of London as a world financial center damaged. Alternative financial stability measures like increased bank capitalization requirements have been offered as a reputedly more realistic solution.

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