Differences with Richard Murphy #2: Why not use a tiny Financial Transaction Tax to remove excess money from the system?

As I have said before, I agree with Richard Murphy on the vast majority of the points he makes in his long series of very clear and informative videos. 

That said, in my recent posts, I have been arguing that while Modern Monetary Theory is a very interesting idea, Richard is wrong when he says that it accurately describes the current functioning of the UK economy. Specifically, Richard claimed again in a video he posted this morning that "there isn't a shortage of money supply. In fact, as modern monetary theory points out ...  governments create all the money that we use".

I'm sorry. The truth is that the vast majority of money in circulation is created by commercial banks when they make loans. And, in my opinion, this also applies when the 18 GEMMs, that have exclusive purchasing rights,  buy UK treasruy bonds, or gilts. This is because there is no requirement for them to use pre-existing money.  

But I would agree with Richard that the UK government certainly could create the money supply by getting the Bank of England to credit the Treasury with the money its needs - as proposed by MMT. And the fact that the UK is no longer bound by article 123 of the Lisbon Treaty makes this even more feasible.

Giving the GEMMs the exclusive right to buy up bonds has the consequence that UK taxpayers ended up paying £105 billion in interest charges in 2025. The total amount of taxpayer money handed over between 2000 and 2025 comes to a staggering €1.21 trillion. 

Richard then proposes that the basic aim of taxation is not to provide funds for governent spending, but rather to remove excess money from the system to prevent inflation. That description could be applied to any of the taxes that the UK government imposes.  Just for clarity, here is a breakdown of the main types of taxes used in the UK in 2024-2025.

Total HMRC Tax Receipts: £858.9 billion in 2024-25, an increase of 3.7% from the year before, originating from 

1. Income Tax (including Capital Gains): £301 billion (35.0%)
2. National Insurance Contributions: £172.5 billion (20.1%)
3. VAT (Value Added Tax): £170.6 billion (19.9%)
4. Corporation Tax: £91.6 billion (10.7%)
5. Other Business Taxes: £97.7 billion (11.4%) 
6. Other smaller taxes: ~£25 billion (2.9%)

 I'm not sure whether any of these are specifically involved in removing excess currency from the economy. None of them include a mechanism that would allow the Bank of England to control the money supply directly. 

 So, here is my suggestion, and I would love to know what Richard thinks.

The Bank of England could indeed provide all the money the treasury needs - and follow the MMT idea. But, in addition, I would like to see the Bank of England directly responsible for imposing a minuscule Financial Transaction Tax on all sterling denominated transactions - ideally, wherever they occur in the world. The rate of the tax could be continuously varied to ensure that the money supply is optimal.  It's a proposal that I have been making for over a decode - see for example this post from 2014

I've used the BIS figures to demonstrate that there were over $18 quadrillion of transactions globally in 2022, a figure that was  up 13.2% on the figure for 2021 ($15.9 quadrillion). We will see what the figures will be for 2023, 2024 and 2025, but I think we can assume they will be even more eye-watering. 

The next question is what proportion of those numbers correspond to transactions involving sterling? The Bank of England did a survey of market activity in April 2025 that the average daily UK FX turnover reached a record high of $4,045 billion, representing a 26% increase relative to turnover recorded in the October 2024 survey. This constituted the largest survey-on-survey increase since 2013. 

For those figures, transactions that involved GBP constitute about 12% of the total - a figure that fits with the BIS Triennial survey for 2022. Let us suppose that the Bank of England could impose a tiny FTT on 12% of $18 quadrillion - over $2 quadrillion. How much money could be removed from the system?
Well, even with a tax of just 0.05%, it would generate around $1 trillion, roughly equal to the entire tax revenue of the UK government. 

In the context of MMT, the aim is not necessarilly to replace the existing tax system. Rather, the idea is to show that the Bank of England would have plenty of scope for keeping the money supply under control. 

My proposal is that everyone using sterling would pay the tax - it's effectively just a tiny service charge imposed by the Bank of England for using the currency. Anybody making bank transfers in Sterling, or using a credit card to pay in Sterling would pay. But the amount (0.05%) would be nothing compared with the 1-3% merchant fees that the credit card companies impose on us. 

Some might imagine that the high-frequency traders that are responsible for the vast majority of the transactions would shift to using other currencies. Frankly, I don't think that would be a problem for the UK - it would tend to reduce the volatility in the system. 

 One of the advantages of such a system is that the value of the FTT would be directly set by the Central Bank - and not used to raise money for the Treasury. I think that this would make the MMT model much simpler to defend.