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date: 10 November 2009

embargo: 00:01hrs Wednesday 11 November 2009

UK transaction tax could raise £30 billion a year

The Chancellor should introduce a 0.05 per cent transaction tax on instant sterling transfers between UK financial institutions so that the finance sector makes a major contribution to repairing the damage done to public finances by the credit crunch, the TUC says today (Wednesday).

Ahead of its Pre Budget Report (PBR) submission to be published later this month, the TUC says that it would be wrong to take measures to reduce the deficit until 2011 because the major contribution to closing the deficit will come from economic growth and that nothing must be done that threatens recovery.

But when the time comes to deal with the remaining structural deficit, the TUC argues that the finance sector, which caused the crash, should make a proper contribution through higher taxes.

The TUC is proposing a transaction tax on the money that goes through the Clearing House Automated Payments System (CHAPS). This system is used by large banks to make same day, irrevocable payments. Transactions - which reached £74 trillion in 2008 - are dominated by the trading activity of large financial institutions.

A transaction tax of 0.05 per cent would have raised £37 billion in 2008, but would only impose a very modest charge on each individual transfer. A tax on the average CHAPS transfer of £2 million pounds would cost £1,000.

The TUC believes that after adjusting for changes in the behaviour of financial institutions, a transaction tax of 0.05 per cent could raise around £30 billion a year.

The total value of CHAPS annual transfers is 50 times greater than the UK's GDP (£1.5 trillion) and more than 15 times bigger than all cash transactions such as debit cards, cheques and ATMs.

The TUC says that the main purpose of the tax is to raise money to repair the public finances and therefore need not be permanent. But if it is found to have a useful dampening effect on speculation, then it could be made permanent.

TUC General Secretary Brendan Barber said: 'When the time is right to begin to deal with the deficit, those who caused the crash should pay their share. While attention has been focussed on possible G20 plans for an international transfer tax to fund development and international action, there is a strong case for a domestic tax just for UK CHAPS transfers. We already have a range of such taxes in the form of stamp duty.

'Even if the introduction of the tax changes some behaviour it can still raise very significant amounts of money.

'A transaction tax won't be painless. But no deficit reduction plans are. Putting up VAT would hit consumers, particularly the poor, and encourage evasion. Raising income tax would hit ordinary taxpayers hard and cutting public services would also increase unemployment and bankruptcies.

'A transaction tax need not be permanent and the pain will be much more fairly distributed than making middle Britain pay for the mistakes of our financial institutions.'

NOTES TO EDITORS:

- The TUC's transaction tax proposal would apply to any sterling payment that goes through the Clearing House Automated Payments System (CHAPS) or any new instantaneous, irrevocable financial transaction system.

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Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Brenchley T: 020 7467 1337 M: 07900 910624 E: ebrenchley@tuc.org.uk

Press release (700 words) issued 11 Nov 2009