Page last updated at 20:50 GMT, Saturday, 7 November 2009

Lukewarm reaction to UK tax plan

Alistair Darling and Gordon Brown
Gordon Brown and Alistair Darling want a fund for bank bailouts

Prime Minister Gordon Brown's idea of a financial transactions tax has received a lukewarm response from G20 countries.

The proposal, which took delegates by surprise at the meeting in St Andrew's overshadowed other items on the agenda.

The US said it would "not support" a transaction tax and Canada added it was "not an idea we would look at".

The Conservatives said that Downing Street had previously "poured cold water on this proposal" and that the Treasury had called it "unworkable".

Chancellor Alistair Darling said the leaders had agreed the International Monetary Fund should now consider the possibility of introducing an international transactions tax, which would be used to create a fund for bank bailouts.

He said governments should consider whether it would be possible to develop a tax that would be universal, comprehensive in scope and compatible with financial stability, as well as fair and which would not "distort things".

He described the idea as "clearly work in progress, it will take time to develop but it is, I believe, an important piece of work".

Tobin-type taxes don't work as they require perfect or near-perfect global implementation and assume no innovation
Angela Knight, British Bankers' Association

He later told the BBC: "To rule out any possibility of change on one day wouldn't be right. That's why all of us agreed... that the IMF should look at this further.

"But the objective of making sure that people who cause so much difficulty actually contribute and pay towards solving those problems - that must be right."

Mr Brown said a global levy on financial transactions was one of the ways to make banks pay but said the UK would not introduce such a tax unless other countries did so as well.

Other options, he said, were an insurance scheme, a global "resolution fund" or a contingent capital arrangement.

Idea rejected

The UK has in the past been opposed to transaction levies, known as Tobin taxes, believing they could damage the interests of the City of London.

Hugh Pym
Hugh Pym, BBC chief economics correspondent

Gordon Brown sprang a big surprise by putting his weight behind the controversial plan for a financial transactions tax.

The idea has been gaining some currency in the last few months as world financial leaders look for ways of ensuring that taxpayers do not have to bear the cost of future bank bailouts. But there was no sign until today of any great sympathy for it from the British government.

Downing Street sources make clear that it is just one of a couple of options which will now be looked at by the IMF before reporting back early next year. They say the plan has only become a realistic option because the G20 has proved it can organise co-ordinated economic policies.

But the cool reaction from US Treasury Tim Geithner proves that there is a long way to go to get much momentum behind it.

Mr Brown can only hope that other countries, which have backed the idea in the past, swing round behind his initiative.

BBC Business correspondent Joe Lynam said the G20's agenda "was somewhat usurped by a very interesting verbal hand grenade thrown by the prime minister into the debate" by mention of the idea of a transaction tax.

But the head of the IMF, Dominique Strauss-Khan, said he believed the transaction tax was unlikely to be adopted.

"I don't believe it will be a transaction tax because transactions are very difficult to measure and so it's very easy to avoid a transaction tax," he told Sky News.

US Treasury Secretary Timothy Geithner dismissed the idea of such a tax, saying: "That's not something that we're prepared to support."

He told reporters: "This is an idea that has been around for a long time. Many countries have a lot of experience with the design of these kinds of taxes. I think, frankly, the experience has been mixed."

Canadian finance minister Jim Flaherty also rejected the proposal, telling Sky News it was "not something we would be interested in in Canada".

He added: "We are not in the business of raising taxes, we are in the business of lowering taxes in Canada. It is not an idea we would look at."

Charity support

Russian Finance Minister Alexei Kudrin said: "I am a sceptic on such taxes. Gordon Brown is known for always raising taxes."

Angela Knight, from the British Bankers' Association, said: "Tobin-type taxes don't work as they require perfect or near-perfect global implementation and assume no innovation.

"Banks are willing to discuss a better intervention mechanism, and more capital to be held as an insurance is already on the table."

A Conservative spokesman said that Mr Brown appeared to be "chasing headlines".

A financial transaction tax is part of the solution, along with measures to help developing countries retain the revenues they lose to tax havens
Martin Hearson, ActionAid

He added: "Six weeks ago Downing Street poured cold water on this proposal and the Treasury said it is unworkable - what has changed?

"Instead of empty headline-grabbing announcements Gordon Brown should focus on the crisis we are living through now which he helped to create, which means businesses are folding and insolvencies rising at record rates."

Charity appeal

Although politicians have reacted against the new tax proposals, charities have expressed support for the idea.

Martin Hearson, ActionAid's tax expert, said: "A financial transaction tax is part of the solution, along with measures to help developing countries retain the revenues they lose to tax havens."

Max Lawson, Oxfam's senior policy adviser, said: "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. Every minute around the world 100 people are forced into extreme poverty as a result of the economic crisis. Money raised by a financial transaction tax on banks could make a massive difference to the lives of ordinary people."

Meanwhile, a statement issued after the G20 meeting says the global economic recovery is "uneven" and remains dependent on support, while unemployment is a "major" concern.

Print Sponsor

The BBC is not responsible for the content of external internet sites

Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit


Sign in

BBC navigation

Copyright © 2019 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific