The power of a 0.1% FTT to abolish conventional taxation

Suppose that David Cameron and George Osborne had not decided to walk out on the 26 other EU countries. Suppose that instead, they decided that maybe they might consider implementing the 0.1% FTT that the European Commission has been proposing. Clearly, given the scale of financial transactions in the UK, they would need to negotiate a cap on the amount paid to the EU. I have been proposing that it should be no more than the UK's fair share on the basis on relative GDP. Currently, the EU's budget is strictly limited and cannot exceed 141 billion euros - the UK's share would be something like 20 billion euros.

But with visible financial transactions running at around £1000 trillion per year (a number that doesn't include untold amounts of Shadow Banking and other more obscure financial transactions), the 0.1% FTT should logically generate around £1 trillion a year. After paying the 20 billion euros to the EU, this would leave a rather large sum over. What could that money be used for?

Well, to get some ideas, I downloaded the figures from Her Majesties Revenue and Customs. They have an excel spreadsheet that you can download here  or a pdf file with a table from here. I've compiled the tax receipts for 2009-2010 in a table with the amounts ranked in descending order.

First on the list is Income tax, which generated £134 billion last year. This could be entirely replaced by an FTT on visible transactions of 0.013%.
Next comes National Insurance contributions which raised nearly £95 billion, a sum that could be generated by an FTT of 0.009%.
VAT raised £67.2 billlion, and could be replaced by an FTT of 0.0067%
Corporation tax is next. It raised £33.4 billion, and could be replaced by an FTT of 0.0033%.
After that come Fuel and Tobacco duties that personally I think could be retained, because they are actually useful for ecological and health reasons.
Stamp Duties raised £7.4 billion and could be eradicated by an FTT of 0.0007%.
I can't be bothered to list all the other taxes, some of which are socially significant (Climate Change Levy and Air Passenger Duty for example).

But the conclusions are clear. Even scrapping Income Tax, National Insurance, VAT, Corporation Tax and even Stamp Duty would only require an FTT of 0.034% - about a third of the rate proposed by the EC.

When I point out the huge revenues that could be generated by even a tiny 0.1% FTT, many people on the Guardian comments page argue that any FTT would lead to all financial transactions moving elsewhere. I get told that revenue would drop to zero. I keep repeating that no, it won't drop to zero, because only trading that makes less than 0.1% profit on each transaction would no longer be viable.

Of course, no-one has the foggiest clue what percentage of the £1000 trillion involves transactions that only make tiny, sub-0.1% profits. That's one of the main reasons for requiring that reporting must be made more complete.

But this analysis shows that even if trading dropped to just one third of its current levels, it would still be possible to abolish all the main taxes with a single flat rate FTT at 0.1%.

When will people wake up to the fact that a flat rate FTT is a fantastic deal for everyone, including any body doing business in the real world. Literally the only people who will not be able to profit from such a move would be the high-frequency traders and speculators. These are the only "British interests" that Cameron and Osborne are protecting by their blanket refusal to even consider the introduction of a financial transaction tax.