§ Mr. Richard Allan (Sheffield, Hallam)
I beg to move,That leave be given to bring in a Bill to establish a Commission to inquire into the feasibility of a foreign exchange transactions tax; to provide for the Commission's remit and duration; and for connected purposes.I was pleased to learn during the statement that a special purpose vehicle was part of the private finance initiative, and not a type of four-wheel drive vehicle, as I had thought.
I shall begin by describing as straightforwardly as I can the benefits of a foreign exchange transactions tax, and then set out why I think that that would be very timely. The tax is commonly known as the Tobin tax, following proposals made in 1972 by the Nobel prize winning economist James Tobin, who promoted the idea of a small tax on foreign exchange transactions. He believed that the tax would help promote free trade, by assuring countries that they could open their markets without exposing themselves to disruptive movements of "hot money". Tobin did not, however, see that as an extreme move against free trade. In promoting this Bill, I am anxious that his original aim should not be forgotten.
The aim of a Tobin tax is to provide a useful tool for stabilising currencies and much needed funds for international development to help free trade work fairly. It would be complex to establish the tax as, to be effective, it would require new means of international co-operation. That is why I propose that a commission be established in the first instance, to analyse the challenges of implementing such a novel tax regime. However, the current state of the financial markets means that a decision in principle by the UK would be highly significant in developing the proposals.
At present, 84 per cent. of all foreign exchange transactions occur in just nine countries, of which the UK is one. An indication of willingness on the part of those nine countries to introduce the tax would take us most of the way to finding a workable solution. Our Chancellor of the Exchequer has shown himself open to the idea. In a speech to the Federal Reserve in New York, he declared his willingness to examine the practicalities of "innovative ways" to finance development, including currency taxes. In addition, our Prime Minister argued in his speech to the Labour Party conference thatour economy should not be run for speculators and currency dealers".I assure them that there would be widespread support in Parliament and among the general public if they really can place the UK at the forefront of international negotiations on the Tobin tax.
In Parliament, 88 MPs have so far signed an early-day motion tabled by the hon. Member for North-East Derbyshire (Mr. Barnes) on this subject. Outside Parliament, organisations such as War on Want, Oxfam, Christian Aid, Save the Children and Unison have signed up to the Tobin tax declaration, along with 38 others.
The tax would produce a win-win situation for the world's poor, so who would lose? More than $1 trillion changes hands every day on global foreign exchange markets. More than 80 per cent. of that trading is of a 903 speculative nature—buying and selling money for profit's sake. Although such currency gambling has enabled some banks and investors to make multi-million dollar profits, it is not part of any genuine trade or investment. Instead, these volatile movements of capital destabilise entire economies, causing serious financial crises such as we have seen in south-east Asia, Latin America—most recently Argentina—and Russia, disproportionately affecting the most vulnerable in those societies.
On some estimates, more than 10 million people lost their jobs in the first few months of the east Asian crisis in 1997–98. Millions more were caught up in the aftermath, pushed into poverty and debt, while Governments had to divert resources from social programmes into propping up their currencies. The ripples from these crises are felt around the world, giving us all a direct interest in resolving them in addition to our natural concern for the people of the affected countries.
The Tobin tax, while helping to stabilise currency, would also generate funds that could be put towards international development programmes. A minimal tax of, say, 0.1 per cent. on currency transactions would not hold back productive business transactions for trade and investment but would hit speculative transactions. War on Want, which leads a campaign for the tax, estimates that taxing at that low rate could raise between $50 billion and $300 billion a year. That would more than cover the estimated cost by the United Nations development programme of $40 billion a year to eliminate the most extreme forms of poverty and to provide access to sanitation and basic education in all developing countries.
I hope that the House will accept that such taxes merit further investigation by a commission, and that it would be very timely to do so for the following reasons. First, there is to be a major United Nations summit in Monterey, Mexico, next week on financing for development. The need for substantial increases in aid for developing countries has been recognised, but we are still a long way from finding the solutions.
I commend the Chancellor of the Exchequer for his launch yesterday of a £10 million education fund for deprived nations, but that is against a background of the UK's continued failure to deliver the United Nations pledge to raise aid levels to 0.7 per cent. of gross national product. Any receipts from new taxes such as the Tobin tax should be in addition to the United Nations aid target and not seen as a substitute for it. I urge the Chancellor at the United Nations summit to commit the UK to reaching the 0.7 per cent. target and exploring additional new funding methods.
Secondly, there is a growing movement in this country and internationally to introduce a Tobin tax. That has come together with a series of events today on what has been termed Tobin tax day. They include an expert seminar this afternoon, followed by a deputation to the Treasury to present a declaration ahead of the UN summit.
This evening, Parliament will host a movie premiere as a new advertisement for the Tobin tax is shown in Portcullis House. If the music of Radiohead and the voice of Ewan McGregor are riot enough to attract hon. Members to that event, they may be drawn by the knowledge that the advertisement has been deemed "banned". That follows a judgment that its content is too political for broadcast on television. However, the full uncensored version is available on the Tobin tax website, where no such restrictions apply, at www.tobintax.org.uk.
904 On the international scene, a Bill to accept a foreign exchange transactions tax is today being passed by the Belgian Parliament. Belgium will join the French Parliament, which passed a law in November committing France to the introduction of the tax when other European Union countries have signed up to it, and the Canadian Parliament, which passed a motion in 1999 calling on its Government to promote the tax internationally.
Thirdly, it is important to consider the international context, as we live in times of international insecurity. Much of our time is taken up with talk of conflict and in such a climate it is more important than ever to explore positive measures to enhance security through development rather than ever-increasing armament. I was brought up at a time when cold war rhetoric kept me living in permanent fear of nuclear annihilation. I do not want to see a new generation growing up in a state of permanent war, fearful that the anger of the dispossessed and desperate may break out into violence at any time.
I was impressed by a speech made recently by US Congressman Dennis Kucinich, in which he set out an alternative vision. He said:Let us pray that we have the courage to replace the images of death which haunt us, the layers of images of September 11 … Let us replace those images with the work of human relations, reaching out to people, helping our own citizens here at home, lifting the plight of the poor everywhere.We should not underestimate the harm that fear causes, especially to our young people, and we should be more determined than ever to demonstrate our willingness to find peaceful solutions to international instability wherever possible.
Sadly, the introduction of my Bill has been made more topical by the death of James Tobin earlier this week. I quote a remark that struck me from one of his obituaries:Mr. Tobin was one of those economic theorists whose influence reaches so far that many people who have never heard of him are nonetheless his disciples. He was also, however, a public figure, for a time the most prominent advocate of an ideology we might call free-market Keynesianism—a belief that markets are fine things, but that they work best if the government stands ready to limit their excesses.
I feel very much in step with James Tobin's thinking. This Bill is not an anti-globalisation measure. There are widely contrasting views of globalisation at present. One view would have it as a force of neo-imperialism that will create a world in which the power of the strong to exploit the weak is entrenched so that the rich get richer and the poor ever poorer.
Another view is that globalisation is a progressive force, leading to a world in which all people can exchange goods, services and culture on an equal basis, free from unnecessary and harmful barriers. That is where we should be putting our political energies. We should introduce measures to ensure that free trade really is fair trade; that development is sustainable and of benefit to ordinary people; and that markets work for mankind rather than mankind working for the markets.
The Tobin tax would be a small but valuable part of that body of work. I urge the House to support the creation of a commission to take that work forward.
§ Mr. Bill Wiggin (Leominster)
I declare my registered interest in Commerzbank. Furthermore, since 1991 I have worked in foreign exchange markets.
905 The Bill introduced by the hon. Member for Sheffield, Hallam (Mr. Allan) is probably the most naive and short-sighted proposal that I have heard since becoming a Member. It is the financial equivalent of the Campaign for Nuclear Disarmament, from a party that embraces the single currency above all else.
The hon. Gentleman is right that the UK foreign exchange market is one of the largest in the world, transferring more than $1 trillion a day. However, that size is numerical and is used to advertise the advantages of doing business in the UK. It is a free market which, by its nature, is international. Owing to electronic transfer of funds, currency can be—and is—moved anywhere in the world.
The success of the United Kingdom as a foreign exchange player is based on three criteria: the UK is a good, English-speaking place to do business; there is wise and gentle governance by the Bank of England; and there are no extra burdens of cost or taxation. The Government have many better things to do—for example, improving our public services—than trying to find a way of pushing more foreign exchange business away from Britain.
The average margin on a foreign exchange deal would be less than 0.0001 of that currency—we call that a pip. The size of the profit means that only a huge amount of money would make it practical to continue doing such business.
The proposal is ill thought out. Its acceptance is, of course, in the grant of the Government. It reflects the greedy nature of a Government seeking to increase taxation through stealth, and would in the end kill the goose that lays the golden eggs—the huge amounts of income tax and company tax levied on companies conducting foreign exchange business—for the sake of chasing a difficult market that is far more liquid and international than any tax collector. I hope that the House will reject the Bill.
§ Question put and agreed to.
§ Bill ordered to be brought in by Mr. Richard Allan, Mr. Harry Barnes, Peter Bottomley, Dr. Jenny Tonge, Mr. Simon Thomas, Mr. Neil Gerrard, Tony Baldry, Ms Julia Drown, Mr. Paul Marsden, Angus Robertson and Andrew George.