Tax bank transfers to reduce deficit: TUC

Financial institutions should be levied with a new business tax to help reduce the UK’s economic deficit, according to the Trades Union Congress.

Just days after the prime minister was widely reported to have had rejected his plan for a tax on international financial deals, the TUC has called upon the chancellor to introduce a 0.05% transaction tax on instant sterling transfers between banks, so that the finance sector makes a major contribution to repairing the damage done to the public purse.

The organisation today said that taking measures to reduce the deficit until 2011 would be wrong because the major contribution to closing the gap will come from economic growth and nothing must be done that threatens recovery.

The unions body went to say that when the time comes to deal with the remaining structural deficit, the finance sector should make a proper contribution through a tax on the money that goes through the clearing house automated payments system (CHAPS), which is used by large banks to make same-day, irrevocable payments.

A transaction tax of 0.05% would have raised £37 billion in 2008, but would only have imposed a very modest charge on each transfer, claimed the TUC, adding that a levy on the average CHAPS transfer of £2 million would cost £1,000 – and could raise about £30 billion a year.

The organisation – which will publish its pre-Budget report submission later this month – said the main purpose of the suggested tax is to raise money to repair the public finances, and therefore it need not be permanent, but if it is found to have a useful ‘dampening effect’ on speculation, it could be made permanent.

TUC general secretary Brendan Barber remarked: ‘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 [on] UK CHAPS transfers.

‘[It] 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 increase unemployment and bankruptcies.’

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