17 Feb 2012

Transactions in the UK : around £1760 trillion a year!

Sorry. I've been giving you the wrong numbers. I thought that transactions in the UK were around £1000 trillion. But I was wrong.

I have been piecing together the numbers over the last few weeks, but I hadn't got round to adding them to get the total for the UK. Here they are:

CLS : $4.8 trillion a day in 2011 (around $1200 trillion for the year)
NYSE Liffe - €491 trillion euros in 2011, roughly 99% of which goes though its London office.
LCH.Clearnet Ltd SwapClear  : $283 trillion in 2011
EuroClear UK and Ireland (replaces CREST) : £128.7 trillion in 2011
LCH.Clearnet Ltd Fixed Income : €152 trillion in 2011
Other payment instruments (direct debit, credit cards, cheques ) : £67.5 trillion in 2010.
CHAPS Sterling : £66 trillion euros in 2011
LCH.Clearnet SA (Euros) : €19.50 trillion in 2010 
London Metal Exchange : $15.4 trillion in 2011
London Stock Exchange : €7.86 trillion in 2010
BACS : Total Transactions : £4.06 trillion in 2010

I've used figures for 2011 when available, or 2010 when necessary. This gives the following (converted into sterling at current rates when necessary).

So, there you have it. Visible transactions in the UK add up to £1760 trillion!! Looks like my previous guess based on the BIS figures of £1000 trillion was just a slight underestimate. And I'm sure that there are plenty of other transactions in the "shadow banking" system that are not even listed here. In particular, I have not been able to find numbers for trading in Commodities by LCH.Clearnet Ltd which could well be very large.

With total tax revenue in the UK at around £540 billion (0.54 trillion), this means that ALL the current taxes could be scrapped and replaced by a single FTT of around 0.03%. It's simply because transactions exceed tax revenue by a ratio of over 3000:1.

Can the City really claim that an FTT of 0.03% would be excessive? It's a lot less than the 0.5% Stamp Duty on Share trading that has been in force since 1986. And don't forget that in return the banks would be able to turn UK into a legal tax haven - with no income tax, no corporation tax, no VAT.

Who in their right mind could say that a Financial Transaction Tax would not be a fantastic deal for the UK? Including for the banks...


  1. You're misguided if you think that finding a very large number somewhere in the economy and imposing a very small tax on it will have the same - or less - impact than a larger tax on a smaller activity. 

    The issue is to what extent behaviour will change to avoid the tax. Look at it another way - why would the ultimate bearers of such a tax - pensioners, investors, savers and the like - pay the entire costs of running the country from their investments? They'll simply stop transacting and the potential revenues will disappear. 

    Vat on the other hand can be applied to everything and is hard to avoid - how long would you last if you didn't buy anything? That is why economists favour a tax on spending, and even Tobin, the original proponent of the tax you suggest, didn't favour it. 

    Perhaps you should review the literature before you blog.

  2. Jrussell88

    You seriously think that those responsible for the £1760 trillion a year are (indirectly) pensioners and savers? You don't think that maybe, just maybe, the actors doing much of this are actually computer programs doing high frequency trading? I don't think that a computer program would feel particularly upset if it had to take into account the fact if they make a trade, a predefined percentage would go to the government? It might possibly stop doing trades that didn't make 0.1% profit each time. But that's no big deal.

    VAT is incredibly inefficient. And there are a large number of people who will work very hard to minimise it - at 20% avoiding it is worth the investment. At 0.x%, it's simply not worth the bother of cheating. That's the difference.

    And VAT (and other taxes) require huge numbers of people to collect it, catch fraudsters, etc. An automatic FTT that applies to every single transaction would cost virtually nothing to implement and would be virtually painless.

  3. I'm going to try to explain this another way so bear with me. 

    If I sell you £1billion against $, then you sell it back at the same rate, we have just clocked up £2 billion in no time at all. If we keep this up for an hour or so, we might reach the grand total of £1,500 billion, which is about the size of the UK GDP. But we're not going to feel like we've just produced the output of the UK economy, because we haven't. 

    That's the difference between turnover (or activity) and output. We've generated an enormous turnover, but very little useful output. 

    The numbers which you use in your piece are measures of turnover, not output and are a consequence of lots of huge but probably not so valuable trades. That is why computers are doing them, not people. The computers can run up the £1,500billion turnover a lot quicker than you or I, and at a cost of peanuts. 

    If we were now taxed on our £1,500 billion turnover at 0.1% we'd have to pay £1.5 billion (each or both - I'm not sure but it doesn't really matter). Faced with a potential tax bill of that size for an activity of little value, we'd stop. 

    That is why tax systems are typically charged on the value of an activity, not its volume. The value relates to the willingness and ability of the participants to pay.

    If you want to establish the capacity of the Financial Sector as a whole to support the UK Public Sector, you need to look at its output - what it produces. This has to pay for all the work that's done in the sector, plus the taxman's share. 

    Since the Financial Sector is around 9% of the UK economy GDP - around £150 billion let's say, it isn't going to pay out more than £150 billion, at which point I think most of the participants would have found more gainful employment elsewhere.

    The point being that $1,760 trillion of turnover is irrelevant to how much tax you can raise.

  4. I quite agree that much of the activity is the result of large amounts of money being moved back and forth and adding no value. That's one good reason for taxing such transactions to encourage the people with the money to do something useful with it. But as for the question of how much this activity would drop with (for example) a 0.1%, it is clear that no-one has the foggiest clue. Why not? Because we don't have any information about how much profit is made on such movements. If the profit is less than 0.1% per transaction, it will of course stop - not difficult to get the program to take that into account.

    So, yes, I can't tell you precisely how much of the £1760 trillion would fall away with an FTT - and that's why my proposition is not to have a specific value, but rather a variable rate that is automatically adjusted to generate just the right amount of revenue required for the governments expenditure. You can't get a lower rate than that.

    But the really important point that you do not take into account is the fact that while the FTT may reduce speculation and reduce the total volume of transactions, abolishing the other taxes will have a massively positive effect.

    How much of a stimulus to the economy would you get by completely abolishing VAT? How much of a stimulus would you get by abolishing income tax? And how much by abolishing Corporation tax??

    Just take those last two. I can quite easily imagine a situation where all the multinationals that currently have their trillions of profits hidden in tax havens moving the whole lot back to the UK (or whichever country was intelligent enough to be the first to do it). They could then  pay themselves massive bonuses and pay no income tax. That's actually ok with me.

    Surely, you would be hard pushed to be more liberal and free-market than that.