At the G20 Summit on November 7th, in St. Andrews, Scotland, the UK Prime Minister suggested banks be levied with a tax on their financial transactions. Gordon Brown made it clear that he wishes to see the burden of bank bailouts shifted from the tax payers to the institutions themselves and that this tax was one form of doing that. Other suggestions voiced by the PM included raising insurance premiums for banks to reflect their risk levels, creating bank financed investment pools which will fund bailouts, or instating upfront fees for banks, which will give them a right to request government help.

An early form of the proposed tax was put forward by James Tobin in an effort to create currency stability, after the 1971 announcement that the US Dollar would no longer convert to gold. It was originally created as 1% levy on all foreign currency trades by a bank, though modern discussion has lowered this figure to between 0.1% and 0.25%. James Tobin envisioned that the tax would reign in bank’s speculative activity and bring a higher level of stability to the economy by lowering both fluctuations in currencies and bank risk. The name Tobin has been used on modern incarnations of taxation systems that bare resemblance to the original Tobin Tax, though they might differ slightly in reality.

Quick response to the suggestion came from Timothy Geithner, US Treasury Secretary, who made it clear that the US government would not support the the creation of a Tobin Tax, or any form of “day-to-day financial transaction tax”, though he did not rule out the creation of some form of fiscal incentive to lower bank risk. The view of the US Treasury Secretary was supported by officials from Canada and Russia. Gordon Brown, meanwhile, had the backing of France and Germany.

Speaking on the 21st of September in regards to the upcoming G20 summit in Pittsburg, Stephen Timms, UK Financial Secretary, has decried tax evasion as being morally wrong, he then proceeded to claim that further efforts will soon be made to “tilt the game back towards honest, hard-working taxpayers”.

It was announced on the same day that Alistair Darling, Chancellor of the Exchequer, will use his Pre-Budget Report to instate tougher penalties for tax avoiders, attempt to close loop-holes which make it easier to utilize offshore accounts in avoiding tax liability, strengthen means by which tax avoiders are sought and increase the amount of information available to HM Revenue and Customs.

Alistair Darling also promised to expand the United Kingdom’s network of Tax Information Exchange Agreements. Meanwhile, Gordon Brown, UK Prime Minster is expected to hold talks with international leaders during the G20 summit, seeking to instate sanctions on economically non-cooperative jurisdictions.

Attempting to foster increased international assistance in the UK’s efforts, Stephen Timms said “ahead of the G20 summit in Pittsburgh, I call on my overseas counterparts to build further in this area on the achievements of the UK presidency this year.”

The primary crux of the paper urges the UK government to relax some taxation rules surrounding UK based business, hedge-funds were a primary example. Specifically in regards to this, the paper says “If the UK’s tax rules were amended, hedge fund assets could be held in the UK, with no overall loss and some gain to the exchequer.”

This view is not met with overall support and faces staunch opposition, both from commentators and governmental actions. In early July at the Franco-British Summit, both countries set out to impose economic sanctions on tax havens by March 2010. Prime Minister Gordon Brown said “The writing is on the wall for tax havens wherever they may be”, he added “Tax transparency, full exchange of tax information and reducing tax avoidance are crucial for the health of the global economy.”

Opposing this, the Institute of Directors put forward the view that while imposition upon low tax states is the most obvious option it is not by any means the most efficient or beneficial. Richard Baron, Head of Taxation at the Institute of Directors, said in a press release that low tax states are a reminder that tax burdens do by no means need to be high and that the most productive option for the UK when dealing with them is to gently lower taxation and thereby stimulate the economy.