11/10/2012 11:34 BST | Updated 11/12/2012 05:12 GMT

Eleven Countries Back Financial Transaction Tax - UK Still Opposes

A new European super league of countries committed to taking on the banks emerged on Wednesday - a rare case of public interest trumping that of the financial sector.

A cacophony of fear-mongering bank lobbyists warning of financial Armageddon was brushed aside (unfortunately the UK government has on occasion been in this group) as eleven countries pledged to implement a Financial Transaction Tax - aka Robin Hood Tax - by as early as next year.

The super group, that includes many of Europe's largest economies - France, Germany, Spain and Italy - will use the Enhanced Cooperation Procedure to evade the UK's blocking tactics and implement the measure that will raise tens of billions of Euros each year.

Far from being a Brussels tax as some critics have claimed, the money will be paid into national governments' coffers and could be used to pay down deficits, kick-start jobs programmes, protect public services and help meet international commitments to tackle global poverty and climate change.

So why has the UK government refused to participate, choosing to stand on the sidelines with arms folded, turning down the opportunity both to raise billions and rebalance the financial sector in favour of the real economy? One clue may lie in the fact that over 50% of Conservative Party funding comes from the financial sector.

This is of course not the official line. Publicly, the government argues that Financial Transaction Taxes must be global to work and that by going ahead without the US, Europe will lose business to New York and London.

Yet this oft-quoted refrain does not stand up to scrutiny. Many unilaterally implemented FTTs already exist around the world and have not led to a significant loss of business. The best evidence is right under the government's nose here in the UK. We already have an FTT - a 0.5% levy on shares that raises about £3bn annually for the Treasury, yet London remains one of the world's leading stock exchanges.

The fact is that extending the UK's FTT to bonds and derivatives (at proposed rates of just 0.1 and 0.01% respectively) is really rather modest - it will still represent only a fraction of overall transaction costs, which are often bumped up by the banks themselves charging huge commissions.

It would apply not to retail banking and the rates are set so low precisely to avoid impacting on long-term investors such as pension funds.

Instead, an FTT would fall predominantly on the casino-banking universe where computer algorithms fire thousands of trades a second - earning their masters billions, but destabilising markets. It's here that financial alchemists create derivatives which can bring down economies as we saw in 2008.

The government creating problems for an FTT where they don't exist belies a more worrying trend. It's the latest in a long line of examples in post-financial crisis Britain where the interests of the Square Mile continue to be confused with the interests of Britain as a whole.

We must not lose sight of the facts: an out of control banking sector sparked the largest economic crisis of a generation which the Bank of England estimates will ultimately cost the UK economy at least £1.8 trillion.

Yet instead of asking bankers to pay their fair share towards the clean-up costs, the public have been made to foot the bill with job losses and service cuts.

It's stomach turning to think that shortly after George Osborne announced £10 billion of further welfare cuts on the podium of the Conservative Party Conference he jumped on a plane to Luxembourg to remind his European counterparts that his Government still can't contemplate this tax on the privileged few.

As the European tax chief, Algirdas Semeta put it: "taxing the financial sector is a question of fairness. Banks and financial institutions received - and continue to receive - massive support from the public sector to overcome the crisis. It is not unreasonable to expect them to contribute, in the same way as other sectors, to our collective recovery." IMF chief Christine Lagarde agrees - she today came out in support of the tax.

It is a sentiment shown in polls to also be overwhelmingly endorsed by the British public. When a European FTT is up and running and the scare stories of bank lobbyists are shown to be just that, the UK government should be asking itself whether it is right to continue protecting the City's gilded elite, whilst putting itself on the wrong side of public opinion.