29th November 2011

Hedge fund chief backs Financial Transaction Tax

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The Financial Times reports that David Harding, Chief Executive of Winton Capital has spoken out in favour of the proposed Financial Transaction Tax, otherwise known as the Tobin Tax or Robin Hood Tax (the latter dependent on how the proceeds are used). The tax is charged on all financial transactions between institutions / not involving a member of the public and would be set as a small fraction of 1%. Harding is the first head of a major hedge fund to publicly support the idea.


Harding said: "I would be in favour of a low financial transaction tax if part of it was used to finance more supranational regulation of markets." Given that Harding is also a major donor to the Conservative party he was surprisingly critical of the government stating, "I am surprised to the degree to which the Treasury and the FSA act as lobbying organisations for the financial services industry. There is too great a tendency to see everything as a plot against the British. Everyone in the financial services industry is a big eurosceptic."


Such a tax was discussed by the G8 and G20 during the 2008/09 banking crisis and some favourable comments were made but it was never pursued. More recently the Eurozone countries proposed the tax as a way of providing some of the funds to help bail out the southern European countries with sovereign debt problems. The UK is the main home to hedge and other funds and banks that would have to pay the tax. The UK government's official position is that it would it support the tax providing the other major financial centres were to do the same. The reasoning being that financial institutions would simply switch the location if the tax was imposed in some countries but not others. More recently increasingly colourful language has been used by the government including the chancellor, George Osborne describing the tax as a 'bullet aimed at the heart of London' as it tries to appease it powerful anti-EU members in parliament . The US shows no interest in introducing the tax despite the fact that funds raised could be used to help reduce its very high sovereign debt.


Another argument, again voiced by government ministers is that the tax would be a tax on pensions as pension funds need to switch funds frequently. Equally it could be argued a reduction in High Frequency Trading which would be another likely outcome might help pension fund profitability. The HFT reduction may also lead to more market stability without such a high risk of repeats of the 'Flash Crash' in 2010.