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International Financial Transactions (Tax)

I congratulate my hon. Friend the Member for Nottingham, North (Mr. Allen) on securing this debate and remark, as he did, on the high level of interest and the large number of interventions, which reflect a great deal of public interest. I commend the Robin Hood tax campaign for drawing attention to an important current public debate, and all those involved for the energy, imagination and enthusiasm that they have invested in it. I accept my hon. Friend's point that nobody better could speak in the House for the Robin Hood tax campaign than a Member for Nottingham. As the world begins to emerge from the worst of the global financial crisis, people's minds are, rightly, turning from its immediate and urgent challenges to ways to prevent another, similar crisis in future, or at least mitigate the impacts of such a crisis. As my hon. Friend the Member for Halton (Derek Twigg) pointed out, the impacts have been big and damaging for many people in the UK and around the world. People are asking what went wrong and how we can avoid making the same mistakes again. In doing so, people are looking for creative new ideas that can help the work being done internationally to reform the regulation of financial institutions. A lot of good work is being done, and there is a sense that we need to go further. That is the background to what the Prime Minister said last year in Pittsburgh, as my hon. Friend mentioned, and at the G20 Finance Ministers' meeting at St. Andrews in November, at which I was present. The Prime Minister set out the need for""a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards"," and suggested a number of options, including a global financial transactions tax. Since then, international debate about the idea has grown louder and wider. Various international bodies are considering the issues. The G20 has commissioned work from the International Monetary Fund, which is compiling what I think will be an important report, a preliminary version of which is expected at the G20 Finance Ministers' and central bank governors' meeting next month. That work aims to consider how the financial sector can contribute to the costs that it has imposed on taxpayers and national Exchequers as a result of Government bank bail-outs around the world. The report will need to cover a lot of territory. It will pick up on many current ideas such as systemic risk levies, resolution funds and bonus taxes, and I certainly expect it to cover financial transaction taxes as well. As with any idea for new taxation, it is important that we are clear about the detail, the upsides and the downsides in order to take a proper, considered view on whether it is worth introducing. A lot of serious consideration of the issues is needed. We would need to know, for example, the impact of such a tax on the transactions being taxed and what that would mean for the financial sector more widely and for growth in the economy. How would we ensure that financial transactions did not simply evolve into non-taxed forms, which would defeat the purpose of the tax in the first place? We see that in other contexts when taxes are introduced. One key principle set out by the Prime Minister in November involved economic distortion. If we go down the road of imposing such a tax, we must ensure that there are no unintended consequences that might lead to economic distortions with a damaging impact overall on the economy. We must ensure that in attempting to solve one problem, we do not create another somewhere else. Geographic coverage is also important, as my hon. Friend acknowledged. The Prime Minister made it clear in November, as my hon. Friend the Member for Broxtowe (Dr. Palmer) mentioned in his intervention, that a transaction tax, like the other ideas being discussed, would need to be globally agreed and implemented in order to be effective. We live in an increasingly globalised world and use an increasingly globalised financial system. We in the G20 now have the ability to consider such matters on a worldwide basis, and the G20's work last year under the UK presidency was successful. We have a forum for considering such matters. There are many questions about implementation, collection and design. I hope that the IMF report next month will shine a light on some of those questions and inform the debate on transaction taxes and other ideas being discussed at the moment. As well as the IMF, we have supported the European Council in asking the European Commission to explore the issues. I understand that the debate in the European Parliament today, to which my hon. Friend the hon. Member for Nottingham, North referred, concerned calling on the European Commission to undertake analysis of financial transaction taxes. I took part in the launch of the French-led taskforce on international financial transactions for development in October, when I underlined its importance in considering the financial and economic implications of a new tax. With that in mind, I nominated Michael Izza, chief executive of the Institute of Chartered Accountants in England and Wales, to serve on the expert group commissioned by the taskforce to explore the feasibility of the tax. He has since been elected to chair the group, and he convened a meeting at the ICAEW's headquarters in the City a week or two ago. Work is under way, and the group should report on the feasibility of the proposed measures as a form of development financing in the spring. Another crucial question that we need to ask ourselves is what exactly the purpose of such a tax would be. We need to be clear that a number of different purposes are being discussed at the moment. Some people suggest that the tax could address a perceived failure in the financial market and act as grit in the machinery by creating a disincentive to speculative or socially useless trading. Evidence of such measures' efficacy for that purpose is unclear at the moment, but some well-informed people have certainly argued that the tax could help.