Realist, not conformist analysis of the latest financial, business and political news

How We Know That Avinash Persaud Is Blowing Smoke About The Financial Transactions Tax

On Wednesday 2nd November Robin Hood Tax supporters descended on the Houses of Parliament to send off David Cameron to the G20. Backed by the 80,000 people who had emailed the Prime Minister asking him to support a Financial Transaction Tax in Cannes, we gave out leaflets, stickers and a special Robin Hood version of the Financial Times to MPs on their way into work. Ian Mearns MP

It’s possible to the actual work on a financial transactions tax and prove that it’s pensioners that pay it, it shrinks the economy, doesn’t increase – rather decreases – total tax revenues and so on. As I have done in fact.

It’s also possible to take just a quick look and conclude that Persaud’s blowing smoke.

The mastermind of Jeremy Corbyn’s planned raid on the City is this weekend revealed as a supporter and user of the offshore tax havens on which the Labour leader has pledged a crackdown.

Prof Avinash Persaud has played a crucial role developing Labour policies to tax the City, winning praise from shadow chancellor John McDonnell for designing a “comprehensive” financial transactions tax “that doesn’t leave loopholes”.

Mr McDonnell signalled last month that work by Prof Persaud’s consultancy, Intelligence Capital, would act as a blueprint under a Corbyn government.

Hmm, OK, here’s something from Intelligence Capital from a couple of years ago on the subject:

Transaction costs (excluding taxes) for
pension funds and savers are estimated to be
approximately 59 basis points (0.59%) of the
economic value of the transaction in the equity
markets, 46 basis points in the corporate
bond markets and 57 basis points in the credit
and equity derivative markets, see Table 1
in the Appendix. Total transaction costs are
greater than the UK’s stamp duty on shares
and sometimes more. If the extension of a 0.5
percent turnover tax will cause tumbleweeds
to roll across the City of London, then the
effect of these existing charges and fees must
be even more devastating and demanding of
further investigation.

Note how the trading costs are, generally, quoted as basis points. The tax is then marked as a percentage. Look, 57 to 0.5!

Then we recall that 0.5% is 50 basis points and we can see that his proposal is to double trading costs (including taxes). Which is all we need to know to conclude that smoke is being blown. Mismatching units of measurement like that always is blowing smoke.

Thus we can reject the FTT design.

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