Why Labour’s Robin Hood tax will only punish Corbyn’s target voter

By Tim Focas, director of financial services at Parliament Street.

Another day of the election campaign, and another barmy policy pledge. Labour’s proposals for a tax on financial transactions is a further reminder, as if the electorate needed one, of the economic incompetence that lies ahead should Corbyn by some miracle find himself in Number 10. However, the difference with this policy, perhaps more than all the others, is that it will do more damage to the financial prospects of the everyday working people Labour claims to be representing.

Let’s take a look at what the opposition is calling for and compare it to reality. Labour is proposing that UK based investment firms such as hedge funds pay a 0.5% tax on their share transactions. Their rationale is that it will display a sign of fairness in the tax system and could rake £5bn a year into the treasury.

The reality is that this policy pledge is about as well thought through as a Diane Abbott media briefing. Firstly, it is not just market makers that will be hit by this, its asset managers, pension funds and investment banks that this applies to. Secondly, no stamp duty is paid only when, say, a bank enters into a specific derivatives contract with a fund. Contracts for difference, or CFDs to those who work in the City, are an example. Note to the brains behind this particular economic policy, or lack of them: this is where the seller pays the buyer the difference between the current value of the asset in question and the value of the underlying contract.

Now that’s clear, let’s move onto the politics behind all this. This unfair targeting of financial sector, which has rightly been rejected by the London Mayor, is clearly a feeble attempt to try and fund the ludicrous spending commitments outlined in Labour’s manifesto. The problem is that scrapping this exemption would not raise even a fraction of the capital required to fund Labour’s spending pledges.

However, more importantly, Labour is completely dismissing an industry that contributes over £5b a year to the treasury. As our major financial institutions continue to be hamstrung by rules to increase capital reserves, fund managers provide a much-needed alternative source of finance which can meet the shortfall in lending.

On top of all this, and perhaps the biggest thing Labour is risking, is that the contribution of these firms to daily market liquidity is the foundation of a healthy savings society. Existing tax and retirement savings rules drive the normal people Corbyn claims to protect to invest more savings in the capital markets, helping pension schemes provide for our aging population. These rules not only support retirement provision, but also provide a vital source for the millions of small businesses attempting to raise finance. Putting these clear benefits at risk is perhaps the final reminder we need that when it comes to running the economy, Corbyn and co are completely clueless.

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