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article imageBritish Prime Minister Proposes Global Tax on Banks

By Chris Dade     Nov 7, 2009 in World
At a meeting of G20 finance ministers being held in St Andrews, Scotland, British Prime Minister Gordon Brown has spoken of how a global levy on their transactions could help make banks more accountable to the taxpayers who have bailed many of them out.
Emphasizing that it is not a policy that the U.K. could implement in isolation Mr Brown stated, according to the London Times, that recent events, specifically the bailout of banks using taxpayer's money, have highlighted the need for a "economic and social contract" to ensure that financial institutions fulfill their obligations to society as a whole.
Mr Brown told the meeting, which was also being attended by Central Bank governors from the 19 countries that make up the G20, the E.U. is the 20th member, that there are four options available to bring about the changes in the financial world that he believes are necessary. He explained:There have been proposals for an insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global transactions levy
But it is the latter option, a so-called "Tobin tax", named after Nobel Prize-winning American economist James Tobin, that Mr Brown apparently prefers.
The Xinhua News Agency reports that Mr Brown, Prime Minister of the U.K. since June 2007, believes there to be four principles essential to any tax, or similar measure, that may be implemented on a worldwide basis in the future. Those principles are:
- A recognition that the financial sector is the world's first global sector as such and requires a level playing field
- A determination not to encourage avoidance, allow misuse of capital or permit dangerously low levels of liquidity
- A need to continue ongoing efforts to stabilize the global economy and the world's financial institutions
- A levy that is not onerous but does ensure that the financial sector contributes to overall economic growth
Whilst the London Times observes that when Lord Turner, chairman of the Financial Services Authority in the U.K., raised the possibility of a "Tobin Tax" in August he met with an angry reaction, Mark Kleinman, City editor for Sky News, appears to take a different perspective.
Commenting on the idea of creating a bail-out fund from the proceeds of the transaction levy, although the proceeds could be allocated to boost ailing public finances, Mr Kleinman said:The PM's request that industry engages with the G20 on this is a call to arms that global financial institutions cannot really afford to ignore. Clearly, the other potential levies on the banking sector would have a significant impact on their financial performance
The BBC is reporting that representatives from the U.S. and Canada attending the meeting in Scotland are not particularly enthusiastic about Mr Brown's suggestion for a global bank tax. Indeed the priority for the likes of the U.S., Japan and Germany is seen as agreeing a strategy for ending the stimulus packages that were introduced as the recent recession took hold.
With the U.K. one of the countries still officially in recession Mr Brown does not view the ending of stimulus programs as prudent at this moment in time.
Other reactions to the idea of a global levy, the London Times explains that it would cover every share, derivative and currency transaction conducted by a bank, have come from Angela Knight, Chief Executive of the British Bankers' Association, and Mark Lawson, senior policy adviser, with the non-governmental organization Oxfam.
Ms Knight doubted the viability of the levy proposed by Mr Brown, citing the "perfect or near-perfect global implementation" required as the main reason for her doubts.
Meanwhile Mr Lawson welcomed the Prime Minister's suggestion, which has been prompted by his conviction that the success of the financial sector results in only benefits for "the few" whereas "the costs of its failure are borne by all of us", saying:A tax on banks would be a major step towards clearing up the mess caused by their greed. The G20 has a responsibility to act. Money raised by a financial transaction tax on banks could make a massive difference to the lives of ordinary people
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