Liberal Democrats have proposed creating an immediate new levy on bank profits at a rate of 10%. This would be a direct recognition of the beneficial and explicit taxpayer support which banks have received: the UK banks owe their very existence to the British taxpayer. Some banks such as RBS, Lloyds-HBOS and Northern Rock have received direct taxpayer bailouts. However, all have benefited from the explicit guarantee that none of them will be allowed to fail.
The Governor of the Bank of England has estimated that the UK banks have received the equivalent of £1 trillion in taxpayer support. Further, the banking industry is unique in having the taxpayer acting as its safety net and the Liberal Democrats believe that this should be recognised. Our banking levy would be expected to yield around £2bn next year and this revenue would be used for the moment to tackle the UK structural deficit – thus ensuring that the banking sector helps to pay for the problems it has in part created.
The concept of a financial transaction tax is a good idea in principle and is something which the Liberal Democrats would be happy to pursue. Although I am told that it would be technically possible to levy a small transaction tax on sterling transactions alone, it would be much better to have a common approach by leading financial centres including the US, German, French and Swiss governments. The proceeds from such a tax could provide a modest source of revenue to be used for funding overseas development.
The ʻTobin Taxʼ concept has been advocated for many years and progress has been hampered by a number of issues. These have included technical problems with its implementation as well as competing and sometimes conflicting claims from its proponents over how to use the revenue raised. Demonstrating that the tax can work, by securing the co-operation of Europe and the US, should have priority over elaborate plans which are unlikely to be realised.
