It's nine years now since the financial crisis with wages and productivity barely recovered - and the deficit stretching further in to the future. Although now we talk about the post-Brexit recovery and what that will look like, I think we still desperately need to reflect on the post financial crisis economy and whether we have learned the lessons and better protected ourselves from such shocks in the future. Excessive risk taking in the financial sector - in many cases with a naive ignorance of those risks - was the cause of the crisis. But the crisis also had a devastating effect on the public finances - here and abroad, as governments had to step in as businesses and consumers stopped spending, and as tax revenue fell off a cliff.
I worked at the Bank of England and in financial services before I was elected as an MP and began to see some of the build up of debt by households and the risk taking behaviour of businesses ahead of the crisis. Today I fear that those same behaviours are happening again - with household debt rising and bank bonuses on the increase too.
That's why I have consistently supported a new tax on financial transactions. One of the first television interviews I did after being elected as the MP for Leeds West in 2010 was on Newsnight about the feasibility of a so-called Financial Transactions Tax (sometimes known as the Tobin or Robin Hood Tax). The tax is a small charge on all financial transactions - like stamp duty on the sale of shares but extended to corporate bonds and derivatives. It's now being pursued in most of the EU and the US Democrats have advocated for one.
Yesterday the Labour Party said that such a tax would be in our manifesto. This is a welcome move and will both raise much needed revenue to fund the commitments in the manifesto, but it will also hopefully reduce the speculative transactions on companies that result in financial instability and add no value to the economy. Labour supports business and that means supporting investment, creating value and adding to our individual and shared prosperity. The Financial Transaction Tax encourages long term value creation at the expense of short term bets on businesses. That is pro business and pro financial and economic stability.
Essentially, the Financial Transactions Tax takes the UK's existing stamp duty on shares that currently raises £3.3 billion a year and brings it into the 21st century by expanding it to cover the greater array of financial products that are now traded. This means closing loopholes that currently allow £1 billion to be avoided and extending the tax to capture revenue from trades in corporate bonds and certain derivatives bringing in a further £3.7bn. This extra £4.7bn a year, according to recent research by Stamp Out Poverty - one of the founder organisations of the Robin Hood Tax campaign - could plug last year's NHS funding gap, fix the social care crisis and hire 20,000 new teachers with money left over to build more than 70,000 affordable homes.
What Labour proposes is consistent with moves in other countries, who have quite properly concluded that it is a sensible reaction to the financial crisis to tax and regulate the banking sector more. In Europe Germany, France, Italy and Spain along with six other countries are currently finalising a regional Financial Transactions Tax zone, whilst in the US the FTT was adopted as official Democratic Party policy at their Convention last Autumn.
Beyond the revenue it will raise, the FTT is favoured by many economists as it discourages the worst forms of casino trading, which helped cause the financial collapse in the first place. Most specifically it will reduce the amount algorithmic high-frequency trading, which at very high volumes and very low margins, serves no economic benefit in the real world of goods and services and is recognised as the cause of recent flash crashes. The FTT, even at very low rates, would disincentivise this type of behaviour thereby improving the stability of the financial system. As well, by giving financial authorities greater oversight of a broader set of transactions, it will serve as a useful weapon in the fight against tax dodging.
Nearly a decade on from the financial crisis caused by the banks, millions of people are still struggling to make ends meet. The time is ripe for the Financial Transactions Tax and that's why I am pleased that Labour is supporting it.