Labour’s planned tax on financial transactions has been attacked for undermining the UK’s financial services sector and potentially penalising newly auto-enrolled savers.
But suggestions that the so-called Robin Hood tax, intended to in part pay for higher state pension increases, will be offset by reductions in DC pensions have been criticised as inaccurate, as just 3 per cent of the UK stockmarket is owned by pension funds, and a further 5.9 per cent by insurance companies.
Overseas investors, who together owned 54 per cent of the UK stockmarket at the end of 2014, according to Office for National Statistics figures, would pay the majority of the financial transaction tax.
LCP partner Andy Cheseldine says a transaction tax could increase the risk of the flight of assets from the UK. He also argues that pension savers auto-enrolled into new entities, such as Nest, which have to buy assets as they grow, would be hit with higher charges. More established pension vehicles, which have as many maturing members as new joiners, would be more able to cross trade to reduce the impact of a new transaction tax.
The Centre for Policy Studies points to an EU report that estimated the tax would reduce GDP by 0.5 per cent, more than twice the tax raised.
Cheseldine says: “A financial taxation tax might get rid of some over-trading, but it would increase funds’ reasons for moving somewhere else, like Frankfurt. BlackRock is already talking about moving from life funds to tax-transparent funds, for the efficiencies. It doesn’t take much to make it worth moving domicile.
“The actual cost to pension investors would be a fraction of the revenue raised. But ironically the worst-affected pension investors would be new auto-enrolment savers in funds such as Nest, as they would have to buy new assets and couldn’t cross with departing scheme members.”
CPS head of economic research Daniel Mahoney says: “The Financial Transactions Tax proposed by Labour would pose a threat to the UK’s financial services sector. The UK’s financial sector is vital to the UK economy, being the largest of any major economy in proportionate terms and contributing over £70bn to Government coffers every year.
“There are also major questions as to whether a financial transaction tax will create any net revenue at all. The European Commission, for example, has said that the FTT across Europe would damage the economy by 0.5 per cent, which is twice the projected yield from the tax.”