{"id":5331,"date":"2009-11-11T12:05:49","date_gmt":"2009-11-11T10:05:49","guid":{"rendered":"http:\/\/www.taxresearch.org.uk\/Blog\/2009\/11\/11\/tuc-calls-for-a-uk-transactions-tax\/"},"modified":"2009-11-11T12:05:49","modified_gmt":"2009-11-11T10:05:49","slug":"tuc-calls-for-a-uk-transactions-tax","status":"publish","type":"post","link":"https:\/\/www.taxresearch.org.uk\/Blog\/2009\/11\/11\/tuc-calls-for-a-uk-transactions-tax\/","title":{"rendered":"TUC calls for a UK transactions tax"},"content":{"rendered":"

The first stage of the TUC’s submission on the Pre-Budget report has been released. As they note<\/a>:<\/p>\n

\n

The Chancellor should introduce a 0.05 per cent transaction tax on instant transfers between UK financial institutions so that the finance sector makes a major contribution to repairing the damage done to public finances by the credit crunch, the TUC says today.<\/p>\n

Ahead of its Pre Budget Report (PBR) submission to be published later this month, the TUC says that it would be wrong to take measures to reduce the deficit until 2011 because the major contribution to closing the deficit will come from economic growth and that nothing must be done that threatens recovery.<\/p>\n

But when the time comes to deal with the remaining structural deficit, the TUC argues that the finance sector, which caused the crash, should make a proper contribution through higher taxes.<\/p>\n

The TUC is proposing a transaction tax on the money that goes through the Clearing House Automated Payments System (CHAPS). This system is used by large banks to make same day, irrevocable payments. Transactions \u2014 which reached \u00a374 trillion in 2008 \u2014 are dominated by the trading activity of large financial institutions.<\/p>\n

A transaction tax of 0.05 per cent would have raised \u00a337 billion in 2008, but would only impose a very modest charge on each individual transfer. A tax on the average CHAPS transfer of \u00a32 million pounds would cost \u00a31,000.<\/p>\n

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 \u00a330 billion a year.<\/p>\n<\/blockquote>\n

What is more, it is entirely deliverable. The vast majority of CHAPs payments relate to financial trading. Put them in context as the TUC does:<\/p>\n

\n

The total value of CHAPS annual transfers is 50 times greater than the UK’s GDP (\u00a31.5 trillion) and more than 15 times bigger than all cash transactions such as debit cards, cheques and ATMs.<\/p>\n<\/blockquote>\n

The latter total as follows:<\/p>\n

\n\n\n\n\n\n\n\n\n\n
\n

Payment type<\/p>\n<\/td>\n

\n

Total<\/p>\n<\/td>\n<\/tr>\n

 <\/td>\n\n

\u00a3’m<\/p>\n<\/td>\n<\/tr>\n

\n

Cash withdrawals<\/p>\n<\/td>\n

\n

195,316<\/p>\n<\/td>\n<\/tr>\n

\n

Debit cards<\/p>\n<\/td>\n

\n

245,451<\/p>\n<\/td>\n<\/tr>\n

\n

Cheques<\/p>\n<\/td>\n

\n

1.075,664<\/p>\n<\/td>\n<\/tr>\n

\n

Direct debits<\/p>\n<\/td>\n

\n

3.076,855<\/p>\n<\/td>\n<\/tr>\n

\n

Total non-CHAPs payments<\/p>\n<\/td>\n

\n

4,593,286<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table><\/div>\n

Of non-financial trading use of CHAPs the only serious impact on the public is with regard to house purchasing, where the average additional cost would be \u00a3100. In practice, this could be eliminated by allowing the CHAPs tax to be offset against stamp duty due.<\/p>\n

As Brendan Barber noted:<\/p>\n

\n

A transaction tax won’t be painless. But no deficit reduction plans are. Putting up VAT would hit consumers, particularly the poor, and encourage evasion. Raising income tax would hit ordinary taxpayers hard and cutting public services would also increase unemployment and bankruptcies.<\/p>\n

A transaction tax need not be permanent and the pain will be much more fairly distributed than making middle Britain pay for the mistakes of our financial institutions.<\/p>\n<\/blockquote>\n

Exactly.<\/p>\n

There’s another dimension as well. Historically 14 or 15% of total VAT has been evaded. As the rate goes up so does the incentive to evade and its absolute cost. This makes VAT increases very inefficient as a means of raising revenue. This alternative tax would be hard to both evade and avoid: any bank found facilitating payments due in sterling in settlement of UK debts through other media or currency would be deemed to be party to UK tax evasion. And they would pay the penalty. Banks cannot afford that risk. Of course the person making payment would be liable, but make the banks a party as well and the risk is largely removed: we have to make the suppliers of avoidance and evasion liable in this way. Then the action is eliminated.<\/p>\n

This tax has everything going for it.<\/p>\n

Note: I advise the TUC on tax matters<\/p>\n","protected":false},"excerpt":{"rendered":"

The first stage of the TUC’s submission on the Pre-Budget report has been released. As they note: The Chancellor should introduce a 0.05 per cent
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